What is the circular economy, and why does it matter that it is shrinking?

This article was updated on 10 March 2023 and 27 October 2022. It was first published on 14 June 2022.

The way we live now is using 60% more resources than the Earth can provide – and creating too much waste, according to experts.

Switching to a circular economy is widely considered to be the way forward.

In a circular economy, things are made and consumed in a way that minimizes our use of the world’s resources, cuts waste and reduces carbon emissions. Products are kept in use for as long as possible, through repairing, recycling and redesign – so they can be used again and again.

At the end of a product’s life, the materials used to make it are kept in the economy and reused wherever possible, the European Parliament explains.

The circular economy is an alternative to traditional linear economies, where we take resources, make things, consume them and throw them away. This way of living uses up finite raw materials and produces vast quantities of waste.

For example, the European Union produces more than 2.5 billion tonnes of waste a year.

Extracting and processing raw materials impacts the environment and increases energy consumption and CO2 emissions.

A circular economy could unlock $4.5 trillion of value by 2030, a report by Accenture estimates.

A more circular world would require system change. Consumers, businesses and politicians all need to make changes to how goods are designed, produced, sold, manufactured and reused. Some shifts could include:

Recycling involves converting waste materials into new materials and objects. This process itself uses energy and creates emissions, so can still contribute to global warming.

In an ideal circular economy, products are redesigned so they last through several life cycles – rather than being immediately recycled.

This can include refurbishing and redistributing products.

According to The Circularity Gap Report, published February 2023, the amount of secondary materials being cycled back into the global economy has shrunk from 9.1% of total material inputs in 2018 to 7.2% in 2023.

"This isn’t simply because we’re failing to cycle more," it says. "It’s also due to increasing virgin extraction and the fact that we are putting more and more materials into stocks like roads, homes and durable goods."

Total material extraction has more than tripled since 1970 and almost doubled since 2000, putting it at 100 billion tonnes per year, the report says. It estimates that a circular economy could cut global material extraction by a third – and it is sorely needed, with the world having breached five of nine "planetary boundaries" that measure environmental health.

The waste of raw materials won't just disrupt lifestyles (It's estimated that 6 of the key elements for mobile phones will run out in the next century). It can slow our progress towards other, bigger goals. (Many materials lost to landfills as e-waste today will be key to the energy transition.)

Continuing on this path could lead to "total breakdown of Earth’s life support systems, which are already at a breaking point", the report says.

There are a growing number of circular economy initiatives and technologies already under way.

Examples include the Circulars Accelerator, a six-month programme run by UpLink, the World Economic Forum’s innovation crowdsourcing platform, to help circular economy innovators scale their ideas. In 2022, 17 start-ups are taking part in the programme.

They include Aquacycl, an American company that generates electricity from untreatable waste water; Done Properly, a company in Chile developing sustainable food ingredients and Green Mining, a company in Brazil that recycles consumer packaging.

Innovation is key to progress. Research from Forum initiative Scale360° and ScaleUpNation found that startups that look to build ideas that scale while tackling system change can have an outsized impact on entire industries, accelerating work toward the United Nations Sustainable Development Goals, triggering change that would not be possible through classic commercial strategies.

The Circularity Gap Report says there are four key circular economy principles that we need to follow to achieve a 33% reduction in material extraction and consumption – use less, use longer, use again and make clean. It calls for increased public-private collaboration to make this vision a reality, and points out the ultimate reason why things need to change: "By upgrading to a model that maximizes the value that we extract from our precious materials, we can better ensure the well-being of present and future generations, while respecting the boundaries of our planet."