Circular economy: definition and challenges
The guiding principle behind the circular economy model is sustainable management of stocks and flows of energy and raw materials.
In other words, it is a regenerative economic model built around the idea of creating value while also protecting natural resources.
All business activity has an impact. So the aim is not to have no impact whatsoever; instead, it is a question of choosing to have a positive impact rather than a negative one. Participants in the circular economy have made this choice.
This is the crux of the difference between the linear economy and the circular economy: by counteracting excessive consumption of resources and extending the product lifecycle, the circular economy creates positive effects and reduces the environmental footprint.
The current linear economic model is as follows: extract, produce, consume, discard. By contrast, the circular economy involves considering the product lifecycle and devising a rational way to manage resources.
The 5R model
The circular economy model is based on the “5 Rs”:
- Reduce
- Recycle
- Reuse
- Refuse
- Rot
Unlike the standard linear model based around exploiting limited resources, the circular economy rejects “throwaway culture” and uses waste produced by one type of activity as an input for another. Reusing resources creates economic opportunities because, just like in the linear economy, profitability is one of the goals.
The core tenets of the circular economy
Introducing these new practices means thinking about value creation in a different way and focusing on benefits for the environment, the economy and society.
- Environment: given the depletion of natural resources and the pollution caused by overconsumption, we urgently need to waste fewer resources and reduce our environmental impact.
- Economy: the health crisis has shone a spotlight on the downsides of our economic interdependence. Rethinking the globalised economic model allows us to onshore certain activities and achieve a better balance.
- Company: more engaged and better informed, the public now expects, and at times demands, unequivocal messaging and action from private and public stakeholders to promote a more sustainable economy. Moreover, it is clear that the circular economy can create jobs through the onshoring of certain activities and the development of new skills.
A favourable legislative framework
The concept of the circular economy is quickly entering the mainstream, in part thanks to legislation designed to change the status quo. The “Circular Economy Action Plan” adopted by the European Commission in March 2020 states that “the European Union (EU) needs to accelerate the transition towards a regenerative growth model that gives back to the planet more than it takes”.
The law is changing in several European countries in particular to encourage the reduction or even elimination of funding for non-renewable extractive industries.
Luxembourg, for example, has expressed a clear desire to set the standard in this area, becoming “a dynamic centre of the circular economy”. The Grand Duchy has made the circular economy “a major element of the 2018-2023 government agreement”.