The European Union and other governments are strongly promoting a “circular economy.” Estimates suggest that the implementation of a circular economy could generate millions of euros in benefits to the European Union and, at the same time, lower the amount of waste that goes into our landfills to only 10% of the current total before 2030 (European Commission, 2019). The basic idea of a “circular economy” is relatively simple; however, it is important to note that many of the things we call a “circular economy” are not right examples of this system. At the same time, the real circular economy still remains marginal. This article outlines some key concepts that differentiate a circular economy from what is not a circular economy (even if it resembles it…).

The linear economy uses “inputs” (i.e. raw materials and energy) that are transformed through a particular process into “outputs” (which include both products and services such as garbage and polluting emissions). Not only do those outputs consume raw materials and energy that is ultimately wasted, but they also require additional resources to fully eliminate them, which in turn generates more pollution. Meanwhile, the circular economy is based on seeking productive processes that are as closed as possible, where nothing is thrown away and any possible surplus from a process can be used as the inputs for another process.

It is easy to find reports from companies, articles and web pages that promise examples of companies implementing a circular economy. In most cases these are interesting initiatives, but too limited to be called a “circular economy”. One example is the initiative taken by Levis to accept any clothing that their customers want to discard and to turn them into insulators for construction. Another example is Gerrard Street, a company that has manufactured detachable headphones to facilitate the repair and update of its parts without the need to get rid of the entire product due to the malfunction of one part. Finally, Tata and BMW are both selling used cars or used parts of other vehicles with the same level of guarantee as if they were new. These examples are based on the traditional principles of environmental management: reduce consumption, reuse and recycle (also called “the three Rs of environmental management”).

The implementation of “R principles” are at the base of the circular economy, but each of these initiatives on its own cannot be considered as an example of a circular economy. A more specific label for many of these initiatives might be “downcycling” (i.e. using some remains of a product to generate another product of lower value), which is good but not enough. In general, the circular economy goes beyond the relatively simple practices of recycling or reusing to build a whole cycle generating an effective final reduction of consumptions.

A real circular economy requires greater collaboration between different companies to achieve more effective and efficient cycles. The strategies of industrial symbiosis are therefore the basis of a circular economy. “Industrial symbiosis” is an approach aiming to generate agreements between companies that allow the wastes of one company or sector (whether the waste be in the form of energy, water, heat, transportation, materials, etc.) to become the inputs of another companies or sectors (Trokanas et al., 2014). The best known example of this strategy is the Kalundborg industrial park in Denmark. The Park was built without a “symbiotic” purpose, but an association of the main companies along with the collaboration and supervision of the regional government led to an effective collaboration between neighboring companies.

Theoretically, there could be many different types of industrial symbiosis, although in practice it is not easy to find many examples. The potential of industrial symbiosis could be very large between related companies in the value chain (i.e. agricultural and food companies), as well as between companies that are not necessarily neighbors (such as seed manufacturers and consumers), or even just between companies within the same industry (such as power generation companies). In general, corporate collective actions may play a central role to reduce environmental impacts (e.g. Bowen et al., 2018 for an analytical example). However, in practice, most of the existing examples tend to involve companies that are located close to one another and from different industries (similar to the pioneering initiative of Kalundborg). Other examples are the Rizhao Economic and Technology Development Area (REDA) in China or the Norrkoping Industrial Symbiosis Network in Sweden.

If you know any interesting examples of a “circular economy” (or even examples that resemble it), please share them with us in the comments or contact us directly. As a thank you for your interest, we leave you here with the link to an animated video that explains what a circular economy really is. This video was produced by the Ellen MacArthur Foundation, one of the most active organizations in the publication and spreading of material related to the concept of a circular economy.

References (in this post):

Bowen, F. E., Bansal, P., & Slawinski, N. (2018). Scale matters: The scale of environmental issues in corporate collective actions. Strategic Management Journal, 39(5), 1411-1436.

European Commission (2019): Report from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on the implementation of the Circular Economy Action Plan, 4-3-2019, published in the COM(2019) 190 final.

Trokanas, N., Cecelja, F., Yu, M., & Raafat, T. (2014). Optimising environmental performance of symbiotic networks using semantics. In Computer Aided Chemical Engineering(Vol. 33, pp. 847-852). Elsevier.

(*) Thanks to Cleo Guillou, who made the translation of this post from the original one in Spanish. Her enthusiasm, interest, and growing expertise on business and sustainability are remarkable. Any potential mistakes and the views in the text are only my responsibility as author.