What is a Circular Economy?

People marvel at cycles in nature that renew for millions of years. Food chains are circular, with even the largest predators nourishing the soil and organisms that live in it. Carbon flows in a cycle, storing in the ground and in plants and releasing when things breathe and burn. The idea of a circular economy suggests that people, too, can contort how they manage resources into an efficient and waste-free cycle, just as they unraveled natural cycles to create the economy we have now.

A circular economy is a system in which we produce goods with long lifespans, and outputs that become inputs, thus making waste a thing of the past. The question we should ask is not whether it is possible. It’s how soon. Like many climate-saving objectives, achieving a circular economy is a lofty goal that requires large-scale cooperation. It is also essential if we want to sustain our planet’s resources because by relying on fossil fuels, we may be putting global oil and gas reserves on track to be gone in less than 50 years. Meanwhile, more of the world’s population moves out of poverty each year and more people can afford a higher living standard. They increase the demand for cars, air conditioners, electronics, and other goods that contribute to humanity’s disproportionate energy use. All of this, of course, contributes to global warming and climate change.

The good news is people are excellent at innovating. Renewable energy sources are becoming more commonplace, and global connections allow people, ideas, and resources to come together from across the planet to design solutions. We want a high living standard to be widely accessible, so it is crucial that those who already have it create a more balanced cycle that leaves room for the rest of the world to enjoy the same comforts.

A totally sustainable cycle, a circular economy, today is just an idea. Achieving it requires a number of feats in innovation and climate solutions. Even so, a circular economy is the goal we should all work towards because we can build it piece by piece, and because the more circular we can make our economy, the more it can sustain us without further damaging our climate or depleting resources we currently rely on. It loops efficient solutions together to form a lasting and sustainable cycle.

What does a circular economy look like?

To make our global economy circular, we need:

1. Production designed around fewer and better products.

2. Waste management designed to recycle and supply raw materials to producers.

3. A collective effort to upgrade our habits, customs, laws, and business models.

The producer ownership model

Think about ridesharing. Uber and Lyft targeted the American population, a 91% car-owning population, and convinced them to drive one another and share personal resources. Some people now find it more cost-effective not to own a car at all, one of the biggest actions an individual can take to reduce their household emissions. Now imagine renting or sharing other items you don’t use often: power tools, luggage, or appliances that might be crowding your storage room right now. Sharing resources makes our consumption more efficient and means that fewer items will need to be produced. Items that are made will also need to be durable. This benefits users because they get to use a higher quality product for a lower price. They may also enjoy having a bit less clutter.

Not everything can be shared. But we love when a service makes our lives easier. For example, Interface, a carpet producer, makes circularity easier by installing carpets in office buildings. The business does not end with a sale; Interface continues to repair damaged sections and repurposes the materials in old tiles to create new ones. Think of the loyalty Interface builds with its clients and the savings it enjoys with its in-house recycling practice. What’s more, both the carpet user and carpet provider reduce how much waste they send to landfills that might harm the environment.

Shared ownership is an example of how consumers can use items more mindfully without sacrificing very much. They will demand better quality products, leading to less waste. They will also need fewer of these products, leading to less new production, also less waste. When businesses and consumers choose to share resources, they help make their economy more circular by cutting unnecessary production, consumption, and garbage all at once.

A waste-free economy doesn’t mean a slower one. Businesses have already adopted sustainable models that make sense for their products. Outdoor brands like Patagonia offer generous warranties because their fleeces are designed to last, while Philips offers lighting as a service instead of just selling lightbulbs. Both companies take old products back, a practice that can help companies shift to repairing rather than making new products from scratch. Businesses may shift focus from selling to new customers to servicing for loyal ones. Sustainability is not only a good look; it can mean sustained growth for a business when they run more efficiently, ethically, and win customers’ loyalty.

Waste-away: exporting our trash burden

Most waste can be split into two categories, and no, not “trash” and “recyclables.” Biological waste like food and plant products can biodegrade, so managing this well can send biowaste products back into natural cycles that regenerate life. Technical waste is recyclable and includes glass, metal, and plastic that can often be recycled indefinitely. We tend to discard them instead because separating components is a lot of work – more costly than taking new resources from the Earth.

But imagine if households had to treat their own garbage alone. Would that make you think twice about creating trash? When we wheel a large bin to the curb and then clean our hands, we do not see the burden we cause when we overconsume. In a way, rich countries have been doing the same for years by exporting scraps they cannot process themselves. China used to import more than half of the world’s used plastic, paper, and carboard. Most of the $24 billion worth of recyclable materials would sail on cargo ships returning from rich countries each year, until China shook things up by banning scrap imports in 2018. Since then, Americans and other scrap exporters have had to face the reality that their waste constitutes more than their facilities and staff can handle.

Why would China disrupt local industries to ban scrap imports? The answer: the environmental toll of recycling processes, which are energy intensive, and which pollute local areas. This is exactly why Western countries choose to export their scraps in the first place. This tells us that moving the problem elsewhere does not make an economy circular.

China’s industrial base had to adjust and rely less on foreign imports, but their environment was better for it. The US adapted to the change by searching for other buyers. Some shipments overloaded the ports in surrounding countries, but in other cases entrepreneurs stepped in to match scrap sellers with buyers on new online platforms. Companies, and even new industries can help make sure that usable scraps are recycled. They can do this by buying materials from recycling plants instead of mining raw ones – think copper wires, glass screens, and plastics. In doing so they would stop paying for mining and start funding recycling efforts, while ending up with the same materials. Policymakers have a role in shifting companies’ incentives to favor this. Doing more of this will help the global economy become more circular.

An important lesson from the scrap import ban is that an economy’s sustainability is connected to all participants, from designers upstream to waste managers downstream. To fix the problem we could opt for reusable designs over single-use designs. We need easily sortable items over plastic-lined carboard we use now but cannot recycle. Consumers need to use items mindfully and separate compost from glass and metal. And waste management systems need to collect in recyclable categories rather than defaulting to landfills. The more we hold countries, companies, and citizens accountable for their waste, the closer we can get to a circular economy.

Circularity today

Is our economy circular now? Not by a long shot.

We have billion-dollar industries that rely on resources on track to disappear. These will need major innovations to survive. Other industries thrive on a business model that encourages waste among consumers.

Let’s look at the fashion industry. Runways and magazines set the example that others in-the-know are to follow. But trends from the spring are no longer new by summer. Statement coats of last winter become dated by winter’s return. This concept is called planned obsolescence, and it is a norm that companies engineer to boost sales. It certainly boosts sales in fast fashion. Fast fashion retailers do just about everything to maximize sales: offer the latest trends, supply an endless amount of clothes, set competitive prices and return policies, and maintain a quality that only lasts a short time. All this production exploits workers and spreads chemicals into local water supplies. This leads us to the opposite of what we hope to achieve in a circular economy. As consumers and as investors, we can demand better of the companies in our economy by buying and investing sustainably. Some of us already are, as thrift stores and sustainable clothing brands gain traction among the socially conscious and younger generations. Consumer culture can shift towards a culture of repurposing. As a result, clothing would be better made, production lines would need less staff and materials, fewer chemicals would seep into local rivers, and clothes and people would have longer lifespans.

Part of convincing businesses to change is to convince them that it makes business sense. As was the setup with scrap metals and paper in China, using inputs that others have discarded makes for low production costs. On the flip side, waste can be a new source of revenue if another company finds it usable. Customers who demand long-lasting, repairable products will pay more for them. Companies targeting the sustainability-inclined Generation Z may benefit from a business model built around this value. There are already incentives for companies to become more sustainable, and these will only grow when circular business models become cheaper, easier to set up, and more mandatory.

Conclusion

People just a few generations ago might be amazed to see the connected global economy we have today. With innovations and a collective push, we can mold our global economy further to become self-sustaining. People today are increasingly conscious about how their actions affect the future of our planet because they substantially do affect the future of our planet.

Sometimes terms like “circular economy,” “ethical investing,” and “sustainability” turn people away because the challenge to achieve them is substantial. Some are suspicious of companies’ motives and worry about greenwashing. Some people like the idea but do not know how to apply it. We believe that there is room for optimism because companies care about their customers, so as consumers, we can demand better practices. Elected officials want to hear from constituents, so as constituents we can tell them what will win our support. Money and people help companies succeed, so we can invest in and work for companies we believe in. We can also vote as shareholders and as citizens, and make changes in our own lives that amount to a collective push for sustainability. You do not need to be a climate activist to make a positive change. It doesn’t require perfection. Common-sense practices that are good for the people around us amount to a better world.

A circular economy happens when many companies and governments improve their own corners of the world. It comes down to the simple principles we all learned as children: reduce, reuse, and recycle. We are not there yet, but if we can achieve a circular economy, we have much to look forward to as our world continues to move towards a sustainable future.

Published on April 28, 2022.

References

1. Atasu, A., Dumas, C., & Van Wassenhove, L. N. (2021). The Circular Business Model. Harvard Business Review.

2. Lehtinen, A. (2020). Rethinking Ownership in a Circular Economy. World Business Council for Sustainable Development (WBCSD).

3. Ritchie, H., Roser, M., & Rosado, P. (2020). Energy. Our World in Data.

4. The Economist. (2018). A Chinese ban on rubbish imports is shaking up the global junk trade. The Economist.

5. Wynes, S., & Nicholas, K. A. (2017). The climate mitigation gap: education and government recommendations miss the most effective individual actions. Environmental Research Letters Volume 12.

About the Author

Kristina Bjorksten is an Operations Analyst at Humankind Investments, whose ambition is to make companies more sustainable and enhance the quality of life for humankind. She gained her industry experience at a broker-dealer and brings fresh ideas and an international lens to her role. She studied economics, earning her Master’s in European Economic Studies from the College of Europe and her Bachelor’s in Economics from UC San Diego.