Circular Economy: All You Need To Know

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The circular economy concept has a deep-rooted origin, and part of it first appeared in 1966 in the book by Kenneth E Boulding, which explained that there should be a ‘cyclical’ production system.

In 1988, the term ‘circular economy’ was noticed for the first time in ‘The economics of Natural resources’.

What is a circular economy?

It is an economic system or a model of production and consumption that minimizes the waste and constant use of resources. It involves leasing, reusing, sharing, repairing, recycling, and refurbishing existing materials, extending the product life cycle.

A circular economy aims to keep the infrastructure, equipment, and products used for a more extended period to minimize wastage, carbon emission, and pollution.

Circular economy vs linear economy

The linear economy takes aim at economic benefits only and considers resources and production as unlimited. This ‘take-make-waste’ economic model began after the industrial revolution and has severe consequences like overproduction, reduced life cycles, waste accumulation and over-exploitation of natural resources.

As compared to linear economy, circular economy has opposite fundamentals. It is a ‘make-use-reuse-remake-recycle-make’ economic model which has a closed cycle. This less harmful and more profitable economic structure aims at sustainable economic growth, new jobs, and increased competitiveness.

Principles of circular economy

The circular economy has certain principles that are impossible to achieve, but it gives us specific targets that we can collectively aim at. With the following principles of circular economy, we can make our planet a better place to live.

Resources and energy are priceless.

Since the circular economy objective is to minimize waste, the products manufactured in this type of economy are designed to last longer, using good quality raw materials. Also, while producing the product, it is kept in mind that it should easily be disassembled and reused to manufacture a new product.

This saves energy and labour and enhances the natural capital along with balancing the renewable resources.

Using renewable energy

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The system in a circular economy aims at using renewable sources of energy to fuel the cycle. The purpose of which is to decrease the resource dependency as well as hazardous products like single use plastics, and increase the flexibility of the system.

The renewable source of energy is used in such a way that it gives optimum output without compromising the products’ performance. It is also preserved intelligently, and conversions between energy types are avoided.

Following ecosystem and nature’s cycle

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This economic model supports nature’s cycle and ecosystem as the products are eco friendly. They can be fed back to the ecological system by processes like composting and anaerobic digestion.

The cycle in this economic system helps regenerate soil and oceans, which re-establish renewable sources of energy.

Wellbeing of humans and other species

In a circular economy economic activities never threaten the well being and health of humans and other species. This is due to the fact that the hazardous and toxic is eliminated and the cycle is highly controlled.

Measurement of profit beyond the financial aspect

As we all know, energy and materials are not infinite, so one should intentionally adopt the circular economy to create social values like emotional, aesthetic and ecological values which are beyond the financial aspect.

Products are made so that they last long.

The priority of the circular economy is to make products that last as long as possible. They have the life cycle which is relevant to the human timescale and match material scarcity. Also, when manufacturing a product, raw materials are mixed so that they can be separated and recovered.

Benefits of Circular economy

Since the circular economy intentionally supports regeneration, it has massive potential to add value in the economic sphere and also in environmental, business, and societal spheres. Some of the benefits of circular economy are:

Environmental Benefits

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Resilient and healthy soil

As discussed above, one of the principles the circular economy follows is that it regenerates the soil used for farming by composting and anaerobic processes. It not only enriches the soil with essential nutrients but also minimizes the exploitation of land and ecosystem.

Less emission of Greenhouse Gases

The circular economy can lessen the emission of greenhouse gases and decrease the adverse effect in the atmosphere. It is possible because the circular model of the economy uses renewable energy, reuses the products and nullifies the residue.

Better management of pollution

The circular economy principle helps manage the negative externalities like water, land and air pollution because it does not support the emission of toxic substances during its circular cycle.

Economic Benefits

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Highly potential for economic growth

This new circular economic model assists in cheaper production of goods with a guarantee to reuse it, which ultimately increases the revenues, GDP and the country’s economy.

Minimal use of resources

The circular economy can save up to 70% of raw materials compared to when it is used in a linear economy. As the world population is increasing, there will be more demands for products in the future. However, due to the reuse, recycle, and lasting-long pillars in the circular economy, minimal use of resources exists.

Benefits on businesses

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Minimizes Volatility

Since there is a reduced demand for raw materials in the circular economy, it is not affected by the price volatility. It also protects companies from geopolitical crises which arise from time to time. In other words, the circular economy model is more flexible and can adapt where necessary when it comes to unexpected changes.

More profitable

Businesses that move to a circular economy have more profits as the input cost is low, and in few cases, it creates entirely new lucrative profit streams. Apart from a low input cost, profit opportunities in the cyclic economy come from getting into a new market, consistency in supply and reduced cost on waste management.  

Getting to know customers better

In a circular economy, there are business models wherein products are leased or rented by the users at different periods. This is an opportunity for businesses to learn more about their customer’s behaviours and usage patterns.

Industries adopting Circular Economy

Sustainable practices in the circular economy have recently grabbed significant attention. A few important industries which have now started adopting circular economy are:

Construction Industry

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The circular economy is constructive in diminishing environmental waste drastically caused by the construction industry. Since, in the linear economy, the construction industry uses non-renewable energy sources and generates harmful residues, real estate industries are now looking for sustainable economic models.

Textiles Industry

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The take-make-dispose model of the economy has a diverse negative societal and environmental impact and it also leads to monetary loss to a great extent. Also, tons of clothing ends up in landfills putting human life at risk.

To avoid negative externalities, the textiles industry is now using fibres and clothes which are continuously being recycled. Following circular economy principles in the apparel industry, the materials re-enter into the economy ending up the waste.

Automotive Industry

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Due to the lower cost of production and redefined competitiveness in terms of quality, price, and convenience, the automotive industry is now shifting towards a circular economy. Using recycled materials to remanufacture car parts and create innovative car models are two primary reasons for adopting the cyclic economy model.

Challenges of Circular economy

Though the circular economy has several benefits for the economy, businesses and the environment, certain challenges are responsible for its slower growth.

Economic challenges

In the linear oriented model of the economy, there are few barriers to adopt a circular economy like:

  • Environment and social externalities are not counted in terms of financial benefits. Hence when the economic decision is made, the privilege is given to profit in terms of money instead of nature and people.
  • Since in circular economy low production cost is involved, the goods made in the cyclic economy are not competitive in ‘good quality’ products segment
  • The demand and supply for circular economy products are still deficient.
  • The circular business models have challenges in their development because most of the investors are working under a linear economy model.

Challenges in businesses.

For most entrepreneurs, developing and implementing a circular economy is still a challenge because:

  • Most companies still demand a linear economy as they don’t have the expertise to deal with the circular economy model.
  • Due to various laws and regulations which are linear economy-oriented are not prepared for the innovative circular economy model. Hence it becomes a challenge for businesses to develop and implement it.
  • The majority of businesses still have appraisal systems and goals that focus on short-term profits rather than looking at long-term value creation, which is possible in the circular economy.
  • The GDP index only considers the financial aspect discouraging the environmental and social value.

Final Notes

With so many benefits and value, the circular economy is now overtaking the linear economy and building inroads into it. Innovative contracts and products designed especially for a circular economy are available in various forms like biodegradable food packaging, easy to disassemble products, pay-per-use contracts and so on.

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