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Circular Economy

… in the current economic system?

Many systemic barriers are present in the current linear economy. These include a lock-in in a resource-intensive production model, the absence of true pricing, and opposition by vested interests.

Institutional barriers

  • Absence of a level playing field: The current economic system is geared towards the demand of the linear economy. Circular entrepreneurship is thus at a disadvantage;
  • Vested interests: The transition to the circular economy leads to transaction costs, uncertainty and therefore opposition. Additionally, new, circular business models (e.g., the sharing economy) may clash with current rules, regulations and agreements on labor conditions;
  • Focus on traditional value chain: To close loops new alliances outside traditional value chains are necessary;
  • Short term perspective: Many companies have, for a wide variety of reasons, a short term perspective;
  • GDP limited as an index: GDP does not take into account costs for society (externalities). Potential for social welfare are therefore underappreciated;
  • Limitations on annual reporting: Traditional annual reports and profit and loss statements only cover a portion of sociale value. Integrated Reporting, as well as environmental and social profit and loss accounts complement this.

Sociaal-economische Raad (SER), 2016p27; Raad voor de Leefomgeving en Infrastructuur. 2015, p75.

Economic barriers

  • Price ratio virgin v. secundary resources: Prices of raw materials are fickle. At low prices alternative, secundary resources (of good quality) are not competitive;
  • Absence of true pricing (externalities): By not incorporating social and environmental costs in prices economic decisions are based on incorrect market signals;
  • Limitations on circular business models: Circular business models are more difficult to develop, for instance because financing is more difficult to obtain;
  • Upfront investments: Circular business models sometimes require upfront investments, while returns are uncertain or spread out over a longer period. Costs and benefits are often unequally spread over the supply chain due to market power;
  • Insufficient market demand: The demand for circular propositions is still limited, hindering the business case;
  • Insufficient qualified personnel: In a growing economy shortages may arise in certain professions needed for a circular economy, for instance professionals with technical or ICT knowledge;
  • Complexity business processes: In circular business relations are closer and more intense, both inside a company as with external parties.

Sociaal-economische Raad (SER), 2016p27; Raad voor de Leefomgeving en Infrastructuur. 2015, p75.

Lock-in to resource-intensive infrastructure

The traditional development model is driven by heavy industrial growth and resource-intensive infrastructure. The physical infrastructure of international production, consumption and trade is highly dependent on fossil fuels and geared to once-through manufacturing models.

Preston, 2012, p15.

Externalities and true pricing

For the market to respond effectively, subsidies that encourage excessive use of resources will need to be removed and all ‘externalities’ should be incorporated into the price of resources and energy. China, for example, is introducing a range of measures on resource pricing under its 12th Five-Year Plan. But experience from environmental policy-making over decades suggests that regulations with deep systemic impacts – notably carbon pricing – can be frustrated and weakened by special interest groups.

Preston, 2012, p14; Ellen MacArthur Foundation, 2015a, p8; European Commission, 2014, p. 11-14; Aldersgate Group, 2012, p.13-14; Kok, Wurpel, & Ten Wolde. 2013, p39-40;