The circular economy: A new efficiency paradox?

28 September 2017
Tessa Dunlop

Proponents of the circular economy call for actions to be 'eco-effective': but is this another efficiency paradox?

The goal to create a Circular Economy has gained traction in recent years with calls from both government and civil society to ‘close the loop’. The European Union has pledged over EUR 6 billion as part of its Circular Economy Package and various NGOs around the world have championed the cause. Broadly speaking, the circular economy aims to increase environmental sustainability and spur economic growth through greater resource efficiency in the recycling and reuse of products. The idea is to decrease environmentally intensive primary production in favor of lower-impact secondary production whilst creating less waste, or ‘output’. Some are distancing the objective of circular economy away from the concept of efficiency in the traditional sense (the ratio of useful output to total input, for example the amount of coal used to power a steam engine), and replacing it with the idea of eco-effectiveness. According to the Ellen MacArthur Foundation, the idea behind eco-effectiveness is to transform products and their associated material flows such that they “form a supportive relationship with ecological systems and future economic growth” in a cyclical way such that materials can “accumulate intelligence over time (upcycling)” as opposed to simply trying to minimize the linear flow of materials that characterizes our current consume and throw-away culture. But is this perspective really that different to the objectives that underpin efficiency? Whether considering efficiency in relation to energy generation, or eco-effectiveness as applied to product manufacturing and consumption, both terms imply a reduction of resource inputs into the economic system, because natural resources are finite. And what if, like the paradox of efficiency, a circular economy could perversely lead to an increase in product demand, and thus more primary production and resource extraction?

Zink and Geyer (2017) have introduced the term ‘circular economy rebound effect’ to describe a phenomenon whereby increases in production or consumption efficiency are offset by increased levels of production and consumption. They have criticized the fact that circular economy proponents focus too much on the engineering aspects of the circular economy and not enough on its complex economic effects. In other words, they question whether a circular economy would reduce or displace primary production, or even if it might increase it.

While there is a solid body of research that measures the environmental impacts of recycling and repair activities, there is little known about the impact that these practices have on primary material and product production. This is in large part due to the complexity and difficulties in measuring the economic interactions between the primary and secondary goods markets, which are expected to become more competitive in a circular economy. Zink and Geyer (2017) argue that there is evidence pointing to the existence of circular economy rebound effects that could erase any gains in product recycling or reuse by increasing market demand for products. Take, for example, the income effect when lower-price recycled goods enter the market. Wholesalers often sell lower-grade quality recycled or reused products such as recycled paper or plastic at a discount to higher quality first-use goods. When purchasers perceive themselves as wealthier because they are able to buy more for less, they can purchase more material and use it to make more products than before. The excess wealth may be spent elsewhere, with unpredictable results.

One can also conceive of unexpected consequences of circular economy actions on a larger scale, explain Zink and Geyer (2017). An increase in recycling could, for instance, prompt consumers to purchase more disposable products under the belief that they are reducing their environmental impact. Wealthy consumers may sell their second-hand phones to subsidize their purchase of more expensive first-hand phones, thereby increasing demand and primary production. This effect may be fueled by an increase of secondary phone buyers, for example in poorer countries, who did not previously have an option to buy a phone. And how might a shift towards reuse and repair occupations effect the macroeconomy, including  employment levels, affluence, immigration and consumption patterns?, query Zink and Geyer (2017). What if cheaper recycled products become less cool? (And thus less valued than their harder-to-come-by primary production alternatives?)

This is not to say that the circular economy will necessarily lead to increased primary production. Many initiatives can reduce negative environmental effects if products truly substitute primary production alternatives and they do not create perverse market incentives to consume more new products. The point is that there is currently not enough research to say definitively whether circular economy initiatives will displace and/or reduce primary production. Thus one must critically examine the credentials of circular economy initiatives in their claims to increase ‘eco-effectiveness’.   

 

References

Welch, D., Keller, M. and Mandich, G. 2017. Imagined futures of everyday life in the circular economy. Interactions. Vol. 24, Number 2.

Zink, T. and Geyer, R. 2017. Circular Economy Rebound. Journal of Industrial Ecology. Vol 21, Number 3.

Ellen MacArthur Foundation: https://www.ellenmacarthurfoundation.org/circular-economy/interactive-diagram/efficiency-vs-effectiveness

European Union: https://ec.europa.eu/commission/priorities/jobs-growth-and-investment/towards-circular-economy_en