What is Circular Economy?

Circular economy is a term that has become very popular in recent times. Some associate it with the 3Rs (reduce, reuse, and recycle) while some say it’s a new way of creating value. The concept has gained popularity with governments and companies alike, due to the business opportunities it creates and its applicability to modern economic systems and industrial processes. It is seen as a profitable solution that can help solve the climate crisis, material scarcity, and social issues associated with resource exploitation. This article sheds light on what the circular economy is, and how it developed to its present day understanding.

Shamita Chaudhary
Min Read

The origin of the term Circular Economy cannot be traced back to any particular date or person. It is said 100% circularity isn’t even possible. However, the conceptual understanding of circular economy can be traced back to many schools of thought whose evolution over time has aided its development. The following sections trace its evolution over time and then talk about what it means today.

18th Century

The oldest reference is to the Malthusian Theory of Population (1798) where Thomas Robert Malthus postulated that population growth comes at the cost of the population being able to feed itself. He said that food security will encourage population growth, however, the yield from land is limited, and hence there will come a ‘crisis point’ where food shortage will lead to war, conflict, hunger, etc. This would lead to a decline of population to the point where people can comfortably feed themselves again. This would go on forever, with the fact underscored that our resources are limited. Malthus didn’t account for the development in technology that would allow people to grow more food from the same land parcel, and hence this theory was discarded.

Figure 1:  Jeff Parker’s 2011 cartoon on popping the earth’s resource bounty, only to realise there isn’t enough for everyone. A modern take on the Malthusian theory of population, added with issues inter and intra-generational justice.

20th Century
Concepts based on the theory of limited resources and planetary boundaries came up in the 20th century, and led to the rise of environmental conservationism. Philosophies of the economist and author, Kenneth Boulding, who wrote the book ‘The Economics of the Coming Spaceship Earth’ (1966) helped shape the concept of circular economy (Wautelet, 2018). Written at a time when space exploration was in full swing, and Russia and the United States were trying to outdo one another by landing the first man in space, Boulding referred to an unsustainable “cowboy economy” which considered Earth to have limitless natural resources, versus a more sustainable “spaceman economy” which considered the Earth to be a closed system and operates therein.  

The term ‘Circular Economy’ was finally used in 1990 in the book ‘Economics of Natural Resources and the Environment’ by environmental economists Pearce and Turner (Lacy and Rutqvist, 2015).

21st Century

In the 21st century circular economy references the schools of thought of Cradle to Cradle (McDonough, 2002), Performance Economy (Stahel, 2008), and the Blue Economy (Pauli and Club of Rome, 2010).  

A few countries have taken the lead to formally introduce legislation on circular economy. These are Germany, Japan, and China, along with Europe setting regulations for its member states (López Ruiz, Roca Ramón and Gassó Domingo, 2020). Germany enforced the ‘Act to Promote the Circular Economy and Safeguard the Environmentally Compatible Management of Waste’ in 2012. Japan implemented the ‘Basic Law for Establishing a Recycling-Based Society’ built on the 3R principle. China incorporated circular economy as a central pillar of the ‘Nation Economic and Social Development Plans’ and established the ‘Circular Economy Promotion Law of the People’s Republic of China’ in 2009. Meanwhile EU for its member states had the Circular Economy Package and the latest Circular Economy Action Plan. No such legislation exists in India currently.  

Present Understanding of Circular Economy

Circular economy is a departure from the traditional, extractive linear economy. While the linear economy is characterised by a take-make-use-dispose model of consumption and production, a circular economy is characteristically regenerative in nature. It replaces the end-of-life of a product with strategies to cascade materials back into the system.

Figure 2: A linear vs circular economy (source: Wikipedia)

Being still a “young” field, the inconsistency in the understanding of circular economy has received much criticism in the recent past. Kirchherr et al. (2017) analysed 114 definitions of circular economy and present a unified definition as follows – “A circular economy describes an economic system that is based on business models which replace the ‘end-of-life’ concept with reducing, alternatively reusing, recycling and recovering materials in production/ distribution and consumption processes, thus operating at the micro-level (products, companies, consumers), meso-level (eco-industrial parks) and macro-level (city, region, nation and beyond), with the aim to accomplish sustainable development, which implies creating environmental quality, economic prosperity and social equity, to the benefit of current and future generations.”  

Through this definition Kirchherr et al. (2017) emphasize that circular economy is a long-term perspective, operating across all scales, aiming at a systemic change. It addresses all three aspects of the triple bottom line (social, environmental, and economic) and is equally about consumer responsibility or the demand-side perspective as it is about supply-side management. It is commonly enabled by circular business models (Kirchherr, Reike and Hekkert, 2017).

According to Geissdoerfer et al. (2017), a transition to circular economy requires the implementation of 3 strategies – closing, slowing, and narrowing of material loops. Closing often refers to recycling or reusing, slowing refers to remanufacturing or refurbishing, and narrowing means optimising material inputs and dematerialisation (by digitisation for example).

“Circular Economy is a long-term perspective, operating across all scales, and aiming at a systemic change. It addresses all three aspects of the triple bottom line (social, environmental, and economic) and is equally about consumer responsibility or the demand-side perspective as it is about supply-side management. It is commonly enabled by circular business models.”

-(Kirchherr, Reike and Hekkert, 2017)

The Ellen MacArthur Foundation has been one of the leading organisations in propagating the transition to a circular economy. Below is a video by them explaining the concept in an easy to understand way. Readers can also see their website for more resources regarding the latest developments in the topic.

‘Re-thinking Progress’ by the Ellen MacArthur Foundation

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