Circular Economy Explained

Updated: Aug 8, 2020

Circular Economy Explained

Talk of sustainability is everywhere today and along with it a growing awareness of the linear model of our existing economy.  This linear economic model is captured in the popular description of the economy as a process of “take, make and dispose.” We take natural resources from our environment, produce a product and push it out to end users who then dispose of it. This used not to be such a problem however as the economy has grown and reached planetary limits, inputs are appearing more limited and outputs have become increasingly detrimental to ecosystems. 

To give us some appreciation for just how inefficient this overall linear model is, the Rocky Mountain Institute estimated in the year 2000 that the flow of natural materials globally is 500 billion tons per year but only 1% is put into durable products and still there 6 months later, the other 99% is waste. (ABC, 2001)

As limits are increasingly met the emphasis is now shifting from an economic model that is organized around gross throughput of material and energy in a linear fashion. To a new kind of circular economy which shifts the focus to the internal organization of processes within which resources are used, it aims to optimize for the overall service delivered, rather than the gross throughput of products.

The circular economy is all about identifying and closing loops so as to create self-sustaining systems where producers and consumers are closely coupled to enable constant feedback. For example, food production, consumption, and disposal might be organized to be part of the same closed cycle. To do this industries are studied as industrial ecologies so as to identify where and how resources and energy flow through them, where they are lost and where processes could be interconnected to reduce those losses. 

In a circular system resource input and waste, emissions, and energy leakage are minimized by slowing, closing, and narrowing energy and material loops; this can be achieved through long-lasting design, maintenance, repair, reuse, remanufacturing, refurbishing, or recycling. This is a regenerative approach where things are being constantly repurposed to serve new functions.

The challenge of achieving a sustainable form of development is shifting the emphasis from discrete one-off products to looking increasingly at how they can evolve through their full life cycle. This is a fundamental switch in paradigm from designing systems that are inherently degenerative to systems that are inherently regenerative over time.

Developing a truly circular economy requires diversity and the interconnecting of different systems. Systems and processes that are all the same consume the same resources and produce the same outputs without the capacity to recycle them. It is only by connecting different systems in the right way that we can harness their diversity to create synergies between them.

The circular economy shifts the locus from “things” to the synergies between them. Our existing linear economy is a product of analytical thinking where we divide everything up and separate everything out so as to focus on specific activities and achieve economies of scale – we put housing all in the residential area, factories in the industrial zone, food production in farms etc.

In contrast, the circular economy is about integration so as to enable feedback loops and synergies. As Gunter Pauli notes it is about “using the resources available in cascading systems…the waste of one product becomes the input to create a new cash flow.”

Things in this circular model become multifunctional, instead of a building just serving a housing function it becomes also an energy producer and consumer, a food producer, and consumer, it may function as entertainment and recreation. This multifunctionality works to not just close loops but also create more resilient systems because they are more self-sufficient and less dependent.

As the circular economy is not about any individual product or thing it is rather about changing the organization of whole systems it requires systems thinking. As the Ellen Macarthur Foundation notes “The circular economy isn’t about one manufacturer changing one product, it is about all of the interconnected companies that form our infrastructure and economy coming together… it’s about rethinking the operating system itself”


Systems Innovation

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