Potential and Limitations of the Circular Economy

It’s been just over 10 years since the Ellen MacArthur Foundation launched in September of 2009 and catapulted the concept of a circular economy onto the world stage.

Circular Economy is a regular topic in Davos1, expounded by global money managers including Blackrock2, and even cited as a driver for European3 and US4 legislation.

How to explain the popularity of this concept by the business and government sector? The Circular Economy is portrayed as a win-win for all parties; for business, for government, and for society at large. Specifically, businesses can avoid supply chain disruption through more recirculation of resources as well as build longer term relationships with customers through new business models including product-as-a-service, remanufacturing and take-back. Governments can create over trillions5 in value in through better resource use and regional economic growth. And as materials are recirculated, society should benefit from less environmental degradation.

Sound Too Good to be True?

I’ve been a long time advocate for the Circular Economy. The idea has introduced those further up the supply chain including manufacturers and designers to concepts including extended producer responsibility and circular design. More broadly, it’s created awareness that “waste” should be seen as a resource and presented strong financial and economic incentives that make the concept an easy pitch to CEO’s and lawmakers. However, the idea has limitations and should not be viewed as the holistic panacea it is being touted as by the business community.

Why?

Mainly, Circular Economy does not address or even question our consumption based global economy that drives corporations and governments to pursue limitless growth. Consider that global middle class spending is expected to double to $64 Trillion in 2030 from 20176 and the world’s building stock is predicted to double by 2040 (How much cement and steel is that? The equivalent of building one New York City every month for the next 40 years!7) can better end of life stewardship or circular design gains expect to fully offset the impacts of a doubling in market demand? We have to keep in mind global macro-economic factors such that are pushing our resource use in the other direction. Until we address NET resource use and our current the growth at all costs global model, we’ll still hit our planet’s resource constraints even as we develop better techniques for resource efficiency and recirculation.

It’s also important to keep in mind that recirculation of products and materials is not without energy and labor costs. Every step in keeping items in play such as reuse, repair, remanufacture, and recycling creates an additional footprint. Most Circular Economy practitioners assume that virgin resource use always has the highest footprint. This is simplistic. Factors including how many times a product is used, collection, processing, miles traveled along the supply chain, and the availability of end markets can drastically influence the life cycle analysis of a product or material. For example, experts’ question if clothing rental models actually create NET carbon savings because of the extra transport and dry cleaning involved per customer per return, especially as most of the time the item of clothing as only been worn once before a customer is done with it!8

Lastly, CE does not tackle the issue of ethics in business. And to be truly sustainable, we need business models that serve not just shareholders, but all stakeholders within our society. While circularity has clear business advantages that can appeal to shareholders, issues including working conditions, the CEO-employee wage gap, and lobbying are not included in the concept. Unfortunately, too many companies utilize their embrace of the Circle Economy as proof of their ESG credentials. During this Corona pandemic, corporate actions on sick leave, layoffs, and healthcare access will be a telling sign of how deeply their societal and environmental commitments are embedded.

I’m still a fan of the Circular Economy and it’s potential for positive impact. For example, the Remade Institute calculates that the impact of just 30 of their remanufacturing projects will create annual savings in embodied energy equivalent to 50 million barrels of oil each year - the equivalent annual emissions of taking 5 million cars off the road9. ISRI’s 2019 Annual Report stated that the recycling industry generated $109.78 billion in economic activity last year and directly employed 164,154 people with average wages and benefits of $73,000 while recycling over 138 MT of material10.

But it’s important to understand that the recirculation of products and materials has its limits. We can’t repair or recycle our way into a more sustainable system if our global economic system is pushing in the exact opposite way!

For GDP, which does not distinguish between good and bad production, bigger is always better. Wars and natural disasters, too, can be a boon to GDP as a result of the associated increase in spending. Comprehensive wealth, on the other hand, accounts for all of a country’s assets, including: produced capital, such as factories and machinery; natural capital, like forests and fossil fuels; human capital, including the value of future earnings for the labour force; and net foreign assets.11

Only by questioning our dependency on growth as a measure of economic and societal well-being will we build an economic model that is truly sustainable. While the Circular Economy is a useful tool for moving towards a better future, it’s does not provide the alternative economic model we need to be truly sustainable.

1 https://www.bloomberg.com/news/articles/2020-01-23/circular-economy-lures-blackrock-google-as-a-davos-darling

2 https://www.reuters.com/article/us-blackrock-climate-change-fund/blackrock-bets-on-the-circular-economy-with-new-fund-idUSKBN1WN1MC

3 https://www.euractiv.com/section/circular-economy/news/eu-unveils-circular-economy-plan-2-0-drawing-mixed-reactions/

4 https://www.natlawreview.com/article/circular-economy-and-pollution-reduction-act-stalls-california-legislature

5 https://newsroom.accenture.com/news/the-circular-economy-could-unlock-4-5-trillion-of-economic-growth-finds-new-book-by-accenture.htm

6 https://www.brookings.edu/research/the-unprecedented-expansion-of-the-global-middle-class-2/

7 https://www.gatesnotes.com/2019-Annual-Letter

8 https://www.elle.com/fashion/a29536207/rental-fashion-sustainability/

9 https://remadeinstitute.org/remade-impact-report

10 https://w.isri.org/about-isri/2019-isri-annual-report

11 https://www.worldfinance.com/strategy/why-gdp-is-no-longer-the-most-effective-measure-of-economic-success

---

Gina Lee
Gina is the Founder at Upcyclers Network and has over 15 years of experience in Corporate Social Responsibility and Social Impact with a strong network of relationships across the business, policy, start-up, and non-profit sector in the US, Europe, and China. Her experience includes working with organizations including the Aspen Institute, the LA Cleantech Incubator, the American Sustainable Business Council, K5 Ventures (Orange County’s first start-up accelerator) and Mercy Corps. Gina’s knowledge includes materials management, policy change, international development, government relations, technology start-ups, & sustainable fashion.