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Circular Economy

What are the economic advantages?

The circular economy provides economic benefits to the system: the economy can continue to grow; there are substantial material savings, growth in employment and incentives for innovation. Ellen MacArthur Foundation, 2015a

Economic growth

An important principle of circular economy is the decoupling of economic growth from resource consumption. Calculations by McKinsey & Co. indicate that in a circular economy the GDP, and therefore economic growth, increases. This is the expected result of a combination of increased revenue from new circular activities, and cheaper production by getting more functionality from materials and other ‘inputs’. The effect of this difference in input and output leads to higher valuation of labor, thus increasing income and expenditure per household. This results in a higher GDP. Ellen MacArthur Foundation, 2015a

Substantial resource savings

In theory, the circular economy has the potential to lead to material savings of over 70% when compared with raw material extraction in business-as-usual models (BAU). Taking into account the growth of the world population and especially the middle class, the total demand for materials will still increase, but at a slower pace than without a circular economy. This leads to a lower overall material need in a circular economy than under BAU, with the necessity to consume less and prevent landfill. Ellen MacArthur Foundation, 2014, pp. 17-23

This material saving can result in an annual cost saving of $ 630 billion for the sectors of consumer goods with an average longevity (electronics, bicycles), and material savings of 20% in the sectors of products with a short lifespan (packaging, food, clothing) which equates to a cost saving of over $ 700 billion. Ellen MacArthur Foundation, 2016

One of the methods for stimulating raw material savings is the pricing of commodities, either by measuring the direct eco-costs of the manufacturer, or by getting a complete understanding of the total cost of the impacts of raw materials. PBL, 2014, pp. 22–25.

Employment growth

A large study by The Ellen MacArthur Foundation, SUN, and McKinsey on the effects of the transition to the circular economy on employment, it is concluded that employment will grow as we move to a circular economy. These jobs will be created through

  • An increase in spending by lower prices.
  • An increase in labor-intensive high quality recycling and repair practices.
  • An increase in jobs in the logistics sector by locally taking back products.
  • An increase in new businesses through innovation, the service economy and new business models.

Ellen MacArthur Foundation, 2015a, p. 11

Incentives for innovation

Circular economy asks for innovative solutions based on a new way of thinking. Reflecting on circular rather than linear value chains and aiming for optimization for the entire system where an organization is part of, results in new insights, and interdisciplinary collaboration between designers, manufacturers and recyclers and sustainable innovations Kraaijenhagen, Van Oppen & Bocken. 2016.