Perspectives of Circular Economy
The circular economy is a novel concept developed after the Industrial Revolution, based on the sustainable consumption of both natural and synthetic resources. The circular economy is a closed-loop system while the opposition linear economy is an open system. So moving to the circular economy from the linear economy incorporated a lot of social and economic challenges. But it conserves many resources. This is where terms like 3R principles (Reduce, Reuse, Recycle), Sustainable waste management, etc were effectively used with industries. Now the circular economy has become a global concern while various industries such as energy, water, apparel, plastic, etc have followed the concept.
Through this discussion let's have a brief idea about the development of the concept "circular economy" and it's use of the current scenario.
What is a Circular Economy
What is Economy
The economy is a study of allocating scarce resources for production, distribution, and consumption both individually and collectively. It mainly focuses on efficiency in production and exchange to produce goods with value and to perform the distribution of goods among individuals.
So the major divisions in the economy are
- Consumption
- Distribution
- Exchange
- Production
- Public finance
For that, there is a three-sector model which includes
- Extraction of raw materials (primary)
- Manufacturing (secondary)
- Service industries
In the economic field, both Gross Domestic Product (GDP) and Consumer Price Index (CPI) are the most commonly used indicators to identify the performance of an economy. So it can be said that raw materials have the major capability in handling a country’s economy.
Linear Economy and Circular Economy
Additionally, there are two models for handling the resources; linear economy and circular economy that set the stage for understanding different approaches to efficient resource utilization and sustainability within the economy.
Linear Economy
A linear economy is a traditional economic model which affects a country's economy both directly and indirectly. It is characterized by a take, make and dispose approach. Through this model, the raw materials are extracted to manufacture products for use and after the use, they are eventually discarded as waste.
This model was developed during the industrial revolution period when the resources were abundant and mass consumption was in its infancy. With globalization, this concept has become more widespread resulting in a symptomatic and senseless phenomenon, planned obsolescence.
There are three phases in linear economy naming;
- Extraction and production
- Consumption
- Disposal
Normally this linear economy starts with the extraction of raw materials at the expense of ecosystems. So in the first phase, the raw materials are transformed into products through a certain specific manufacturing process.
In the second phase, the purchase and the use of those final products occurred. This will lead to a certain economic growth with considerable waste.
As for the final phase, it is the end of the product life cycle. This waste is disposed of in landfills or incinerators which contribute to environmental pollution and resource wastage.
Due to these reasons, the linear economy has shown some drawbacks to sustainability such as resource depletion, environmental impact, and economic inefficiency.
The linear economy is created by mass production which is very similar to the flat line process that can be found under the name ‘open cycle’. So this production is eco-efficient as it supplies the market. The linear model heavily relies on finite natural resources. Statistically around 68% of input raw materials are non-renewable resources. The demand for the products leads to irrational usage of the available resources and jeopardizes the balance of ecosystems and biodiversity.
During the production process, resources are not fully implemented in the final product leading to a double negative effect on the environment. After the use of the products, they are detonated or burned. So this disposal phase contributes to pollution and environmental degradation such as landfill overflow with non-biodegradable waste, incineration releases harmful emissions, exacerbating
climate change and air quality issues etc.
During the disposal phase, many valuable materials are at a loss from nature resulting in economic inefficiency. In addition to the damage caused by the linear economy to the ecosystem services, this model jeopardizes the supply of materials.
➢ Fluctuating raw material prices
The level and fluctuation of raw material prices have increased since 2006 leading
to both problems for diggers and buyers of raw materials and risks in the market.
This discourages investments in the extraction and processing of materials,
which can raise the raw material prices in no time. So these price fluctuations
prevent companies from making price forecasts, which gives them a weaker
competitive position than companies that are less material dependent.
➢ Critical materials
The linear economy products are produced with scarce materials. A number of industries make intensive use of critical materials for their production process such as indium and chromium chemicals. The metal industry, the computer and electronics industry, the electrical equipment industry, and the automotive and vehicle industries make use of these raw materials which are available to a very limited extent.
➢ Interdependence
As a result of the increase in trade, the geopolitical interconnectedness of products has become increasingly strong and the raw materials are linked to each other. As a result of this interdependence, the scarcity of one raw material will have a widespread effect on the prices and availability of many more products.
➢ Increase in material demand
In addition to the available limited supply of raw materials, a significant increase in demand for materials is also predicted due to the population and welfare growth, the number of middle-class consumers (with a higher demand for material consumption). In addition, the lifespan of products has decreased dramatically in recent years. This is one of the driving forces behind the increasing consumption of materials because consumers want new products faster and therefore use their “old” products shorter. This in turn means that less quality is needed in a product’s lifecycle, which in turn leads to consumers wanting new products even faster.
These inefficiencies contrast with the concepts of a circular economy, where resources are conserved and reused.
Circular Economy
The circular economy is a model of production and consumption, which involves
- Reusing
- Repairing
- Refurbishing
- Recycling existing materials and products as long as possible to extend the life cycle of products and to reduce the use of raw materials and production
of waste.
This concept of circular economy emphasizes a closed-loop system, considered as a more sustainable alternative to the linear model. The theory of this model originates from the 1960s and the name ‘circular economy’ was first coined by Pierce and Turner in 1989. This model has been used since industrialization and this concept uses the 3R principle to be more eco-effective.
Reduce - Elimination of waste and pollution by minimizing the use of resources
and by using clean and renewable energy.
Reuse - Circulation products and materials at their highest value giving the
maximum life cycle and once their life cycle is over, their raw materials are
recycled.
Recycle - Regenerative nature to minimize the use of natural resources and to give time to the natural environment to regenerate. Due to that, the area which is
needed for mining and other extractive practices will be less which benefits both
current and future generations.
The circular economy includes several policy areas such as sustainable procurement, eco-design of products, functionality economy, extending the duration of use and multiple life cycles, etc.
Transitioning from a linear economy to a circular economy
Transitioning from a linear economy to a circular economy takes a lot of effort and cooperation from all private, public, and government sectors.
Benefits of transitioning from a linear economy to a circular economy
However, there are considerable benefits for everyone involved.
● Economic Opportunities
● Environmental Footprint Reduction
● Sustainability
● Waste reduction
● Decreased pressure on natural resources
● Achieving Compliance
● Job Opportunities
● Shared prosperity for all
According to the above facts, moving from a linear to a circular economy is not only an environmental imperative but also a strategic move toward a more resilient and prosperous global economy, which should be added to other Corporate Social Responsibility (CSR) strategy levers.
In the business sector, there are companies turning to the circular economy due to the significant benefits that this model can bring. IKEA is one of them, aiming to be a fully circular business by 2030 with innovative reusable packaging models to state-of-the-art material recovery facilities.
Economy researchers have highlighted encouraging progress in several diverse countries such as Australia, USA, Netherlands, Amsterdam, China, Chile, Japan, Spain, Portugal, Luxembourg France etc.
As for the impact evaluation, the first Circularity Gap Report of the Circular Economy was developed in January 2018 to accurately measure the circular economy To understand how to move towards circularity or monitor progress effectively. Reports have been converted into the organization’s Circularity Gap Reporting Initiative (CGRi) over time that delivers an annual global circularity metric that measures the state of the world economy and identifies key levers to transition to global circularity.
The methodology used in its analysis takes the ‘socioeconomic metabolism’ of the country and how the resources flow through the economy. This methodology has long-term use as the starting point for measuring and capturing its level of circularity. It also considers the importance of reducing total consumption, with impact prevention through reduced demand considered an important step to take before exploring other mitigation options in a circular economy scenario.
Drawbacks of circular economy
Although the circular economy is a successful alternative, several drawbacks need to be overcome.
- Cost to invest
- Time to establish
- Resistance from extraction companies and landfill owners
- More government support
Let's discuss these drawbacks in a little bit detailed way.
Cost to invest
To close the loop, money needs to be invested in several places. Recycling is one way to enable a circular economy. But unfortunately, only 30% of recyclable things are recycled due to a lack of infrastructure. Investing in more recycling facilities and infrastructure will play a key role in establishing a circular economy.
Time to establish
It needs much time for the transition away from the linear economy. First of all, government regulations need to be passed to support the transition. Food systems need to be redesigned. Most importantly, people’s mindset needs to be changed to think circularly.
Resistance from extraction companies and landfill owners
The people and companies that make profits through the linear economy process such as oil and mining industries and landfill owners may resist a transition to a circular economy due to their profit dropout.
More government support
This is one of the biggest hurdles for this transition. It will take legislation on both the national and local levels. The World Economic Forum (WEF) is crucial for overcoming these challenges by involving in several global initiatives to promote the transition to a circular economy. It acts as a forum for public and private-sector collaboration to drive the shift.
These include the Platform for Accelerating the Circular Economy, which was launched in 2017 for public and private-sector leaders to make commitments and accelerate collective action towards the circular economy. WEF also hosts a series of major value chain action partnerships that work along global material value chains to advance circular models such as
- Plastics (Global Plastic Action Partnership)
- Electronics (Circular Electronics Action Partnership)
- Batteries (Global Battery Alliance)
- Cars
- Fashion and textiles.
In addition, it has launched initiatives such as Scale360°, which aims to mobilize action among innovators, governments, civil society, and private-sector stakeholders to grow the ecosystem for circular fourth industrial revolution technology innovation, with a focus on plastics, electronics, food, and fashion and textiles.
The WEF’s Circular Economy for Net Zero Industry Transition initiative aims to raise the decarbonization ambition for harder-to-abate materials steel, cement, chemicals, and aluminum and help those industries realize a 1.5-degree pathway by catalyzing scalable circular economy solutions, taking in stakeholders from the material supply side and key demand-side industries to facilitate collaborations along value chains on circular economy solutions.