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Circular flow modern market economy – get the basics

Circular flow modern market economy – get the basics

This article on circular flow modern market economy is written on the basis of the European Environmental Agency report on Circular Economy as well as materials from the Ellen Macarthur Foundation.

Need for Circular Economy and global megatrends

  • Global material resource use will double by 2030. 
  • Global population by that time will increase up to 11 billion (current 7.5 billion).  
  • Global competition for resources increases as climate change, environmental pollution, and pressure of ecosystems become unavoidable parts of our daily lives. 

The answer has to be found and fast. Accelerated technological change (in information, communication, nano, and biotech), the new approach to governance, improvement of the monetary and fiscal systems are parts of the equation. Let us take a deeper dive into the subject of Circular Economy. 

Depletion of resources

Linear economy’s (LE) model: take-> make-> consume-> dispose, the model that the majority of communities today live in, is not sustainable. Exposure to bad quality air, soil and water pollution as well as complete loss of ecosystems does not contribute to human well being. The global population (mostly the world’s upper and middle-class households) is consuming more resources than the earth can reproduce. We are living at the expense of the next generations.

The alternative is Circular Economy (CE), the one that is restorative and maintains the utility of products longer. It requires the use of natural resources in the production process to be as little as possible and as efficient as possible. Here is our previous post on CE. 

Key Characteristics of CE

The economy depends and relies on resources such as water, crops, timber, metals, minerals, and energy. The whole idea if CE is to preserve resources and use them as efficiently as we can. The key characteristics of CE are: 

  • the reduced amount of natural resources in the production process;
  • minimized energy and water use;
  • sustainably sourced raw materials;
  • reused emissions;
  • extended product life and reuse of product components.
Model of Circular Economy
Model of Circular Economy

CE triggers significant changes in transition process from Linear Economy, besides being profitable it requires a great deal of innovative design and focus on avoiding downcycling (turning components into smaller, less valuable ones) in the recycling process; shifting taxes from labor to natural resources and extend producers responsibility in governance; product-service system introduction rather than product ownership in business modeling; collaborative consumption, collaboration and transparency along the value chain. CE requires improved coherence and industry symbiosis among industry players, where waste from one business can become a resource for other business. 

Transition to CE is in progress, the raising awareness of necessary lifestyle and consumption changes in society are happening. Continued education, participation, and exchange of experiences among consumers are needed to strengthen the development of CE. The consumer is the one who makes the final choice and creates demand.  

Key Benefits of CE – Health and Safety

Resource benefits

Effectively using natural resources the demand for primary raw materials would stabilize and will ease the strain on the environment. The report states the following examples as solutions that are saving resources: sharing cars, integration of transport models, lightweight and remanufactured cars as well as electrified and self-driving cars.

Environmental benefits

Improved recycling practices will significantly reduce greenhouse gas emissions (carbon dioxide). Food and drink packaging as well as the hospitality and food service sector can significantly contribute to reducing greenhouse gases.

Social benefits 

Transition to CE will create more sustainable consumer behavior and will improve the health and safety of society. New businesses are disrupting old industries and new job opportunities will arise, particularly in such fields as bio-refining (high skilled), closed-loop recycling (medium-skilled), sorting for reuse (low skilled).

Challenges

Although there are very few studies that provide precise measures of the CE impact on Human well being, the global trends forecast significant challenges if LE approach remains. It is also clear that the transition to CE is not expected to be smooth as there will be winners and losers (as benefits will not be evenly distributed) nor it will be complete and permanent. The hybrid models between CE and LE will coexist as “realpolitik” (struggle for resources and power) and corporate businesses are dictating global agenda.
Again, the education and ability for societies to adapt to changes will play a great role in the transition speed to CE in various geographical areas of the world.

Key Enablers

Solving difficult problems is what humans do. Here are the areas which are triggering CE. Clearly, the more smart minds we have that work with these issues, the faster we will see the results.

The innovative business model is the most powerful enabler of CE. Such business models are: 

  • service and function-based businesses where maintenance, take back agreements, leases, rentals are unique selling points;
  • collaborative consumption in the last decade thanks to the internet has taken many industries by surprise, such solutions as sharing, swapping, trading platforms, and leasing solutions are becoming a new norm;
  • waste as a resource, the market of secondary goods and recyclable products;

There are many successful examples of innovative businesses, this trend will continue. The report also states that the changes in finance mechanisms and policy innovations are needed to strengthen and legitimize many new business models. In particular, cash flow, safety regulation, and tax issues are the topics to be addressed for businesses that are operating under new models. 

Smart Reusable Coffee Cups

Eco-designed products are the next enabler of CE. Products that are delivered with fewer resources, avoiding hazardous material, with longer-lasting and recyclable components are becoming popular and gaining the market share. The legislation in various markets is supporting this progress and enhances the responsibility of the producer. Energy efficiency is another issue that has to be mentioned for eco-designed products. Companies and brands that focus on eco-design are gaining greater appeal on the market. For example, many large sportswear and fashion companies are shifting towards eco-designed products. 

The extension of the product lifetime and waste prevention programs are two more key enablers for CE. One example is a program MAGRAMA in Spain, that addresses the challenge of food waste.  

The report also describes how CE is a part of a larger Green Economy that, besides CE direct focus areas such as Waste Management, Waste Prevention, and Resource Efficiency, tackles issues of Ecosystem Resilience and Human Well being.

TOP 5 CE products

  1. Products without single-use plastic packaging, personal care, detergents, food, takeaways, and many others. 
  2. Eco clothing and footwear, products made from recycled materials.
  3. Recycled paper products. 
  4. Biodegradable household products, like glass and metal packaging, wood or wax material products. 
  5. Eco-friendly sports gear.  

TOP 5 CE businesses initiatives

  1. Replacing disposable cups in coffee shops, corporate events, outdoor events with reusable cups, that are connected with logistics platform and smart drop off stations. 
  2. Shopping services for home delivery of bulk and farmers market goods. 
  3. Package free bulk stores. 
  4. Real estate, Car, eBikes and other sharing economy services. 
  5. Cloth, Bicycle, Furniture, Electronic goods secondary markets. 
  6. Any kind of repair services. 

Wrapping up

This article stresses the ever-present problem of efficient resource use and long term perspective. The more we educate ourselves on the topic of sustainable ideas such as CE the better choices we can do on a daily basis. World trends are intimidating, so we do something about it and change a few personal routines. As consumers, we are making a choice every day to support LE or CE. Yes, it is difficult to make changes in our daily routines and habits, it is not convenient and no clear results are obvious. Sooner or later we will have to walk this path, and we better do it sooner than later. Take the time to know whether the brand you want to buy is eco-designed, no single-use plastic please and food without packaging if possible. We are here for the long run.

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