Related Definitions

Circular Economy

What is a circular economy?

A circular economy is a systematic approach to eliminate waste and promote the continued use of resources. It aims to eliminate waste by discontinuing the use of chemical substances and shifting to renewable sources. This model is primarily designed for better economic development to benefit society, businesses, and the environment.

American architect William McDonough is said to have pioneered the concept of circular economy, which has replaced the idea of ‘end-of-life’ with 3Rs (Reduce, Reuse and Recycle).

What are the principles of circular economy?

The circular economy concept highlights that the economy should work effectively at all scales, be it locally or globally, small or big businesses, etc.

The concept is based on three main principles.

  • Minimize waste and all forms of pollution:

The circular economy reveals the negative impact of economic activities causing severe damage to human health and the environment. It includes greenhouse gas (GHG) emissions and the release of hazardous substances.

  • Keep products and materials in use

Circular economy emphasizes on designing products and materials in such a way that they are durable, reusable, and can be remanufactured and recycled. It promotes using bio-based materials and products to use in different ways and move within the economy and natural systems without generating waste.

  • Regenerate natural system

A circular economy will refrain from using non-renewable resources and preserve and strengthen the renewable resources to help in the regeneration of the renewable resources. For instance, using renewable energy resources to generate electricity instead of fossil fuels.

  • Circular economy is an approach to eliminate waste and to promote the continued use of resources.
  • It has replaced the concept ‘end-of-life’ with reduce, reuse, and recycle.
  • This concept is introduced to make the environment sustainable and ensure that we have enough resources in the future.

Frequently Asked Questions (FAQs) 

  1. What is the need to shift to a circular economy?

For a very long time, we followed the linear economy model, which means that raw materials are used to make the final product, and post-consumption, any waste is thrown away (for instance, the packaging of the product).

To make the environment sustainable and ensure that we have enough resources to fulfil our needs in the future, there is an urgent requirement to shift to a circular economy. 

  1. What is the difference between technological cycles and biological cycles? 
  • Technological cycles: It concerns the management of finite resources, which are extracted and used in multiple economic cycles by repairing, reusing, and remanufacturing. The technical materials are plastics, synthetic chemicals, metals, etc. In the circular economy, these materials can only be used, not consumed. 
  • Biological cycles: It involves the management of renewable resources. The biological materials can degenerate to become a part of nature even after undergoing various uses and cycles. 
  1. What are the economic benefits of a circular economy? 
  • Economic growth: In a circular economy, proper design and business models can make sure that technical and biological materials are in constant flow and decouple the increase from limited resources, which can boost GDP. 
  • Savings in resources: In comparison to the linear economy model, there is approximately 70 per cent of resource-saving in the circular model, according to the reports published by World Economic Forum (WEF). In a circular economy, the resources or materials are pushed back to the natural system using technical and biological technology, catering to the rise in demand for resources as the economy grows. 
  • Employment growth: Post implementing the circular economy model, new jobs will be created across all the industrial sectors through increased innovation and within small and medium businesses. 
  1. What are the environmental benefits of a circular economy? 
  • Less greenhouse gas emissions: The circular economy focuses on business or human activities, leaving a positive impact on the environment and fewer greenhouse gas emissions. The practice of reusing, recycling, and using energy-efficient material in the product life cycle will help in reducing greenhouse gas emissions. According to a study done by Ellen MacArthur Foundation, due to the development of the circular economy, the carbon emissions will be half by 2030 in comparison to carbon emissions in 2018. 
  • Soil health and land productivity: The farming system under a circular economy ensures that all the important nutrients are restored back in the soil using composting and other processes, leading to increased land productivity and enhanced soil quality. According to a study done by WEF, soil degradation costs US$ 40 billion annually worldwide along with other costs like degradation of soil by using artificial fertilizers. 
  • Less consumption of primary materials: Under a circular economy, there is less consumption of primary materials like cars, pesticides, artificial fertilizers, petroleum-based fuels, etc. 
  1. What are the benefits to businesses in the circular economy? 
  • Profit opportunities: With the circular economy model in the line, businesses can earn profits by entering new markets and lowering the costs by reducing waste and energy. 
  • Security of supply and less volatile prices: In the circular economy model, there is less dependence on the supply of raw materials as businesses prefer to use recycled material. In addition, the labor cost will increase, leaving the businesses less dependent on raw material prices. 
  • Rise in demand: The circular economy model possesses the potential to create demand for new products and services. The introduction of new practices to be followed using environment-friendly techniques creates the demand for new products and services and new job opportunities. 
  • Customer interactions: The circular economy will encourage new businesses, leading to increased customer interactions. Business models on rentals and leasing will establish long-term relationships and increases the companies’ chances of interactions to gain insights related to the product or services provided. These customer interactions help in providing better service, improved products, and better customer satisfaction.
  1. What are the individual’s benefits in the circular economy? 
  • Health: Shifting to a circular economy can bring down the risk of illnesses, leading to decreased healthcare costs. 
  • Rise in disposable income: According to the analysis done by Ellen MacArthur Foundation, there could be a rise in disposable income under a circular economy.
  1. What are the barriers to the implementation of a circular economy? 
  • Circular economy models are difficult to develop as they might require an upfront investment. Also still, many businesses are being run on a linear economy model.
  • The market for circular products is still niche.
  • No laws and regulations have been prepared yet for the circular economy model, making it difficult to implement.
  • There are fewer professionals with the technical knowledge required to implement the circular economy business model.

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