A circular economy refers to the continuous reuse and recycling of resources and materials. Besides being environmentally friendly, what tangible impacts or changes can businesses and consumers worldwide gain from the advantages of a circular economy? Let’s explore this in the following discussion.
What is a Circular Economy?
A circular economy is a production and consumption model that extends the lifecycle of products, emphasizing sharing, leasing, reusing, repairing, refurbishing, and recycling existing materials and products, thereby minimizing waste.
Unlike the traditional linear economy, which follows a “take, make, dispose” model and relies heavily on cheap, easily accessible materials and energy, the circular economy focuses on recycling materials for multiple uses. Through planned obsolescence and designing products with limited lifespans, it encourages repeated consumer purchases, maximizing economic value.
What Advantages Can a Circular Economy Bring to Businesses?
A circular economy is not merely theoretical. The European Union supports businesses transitioning to a circular economy and plans to eliminate waste in the supply chain by 2029.
Taiwan included the circular economy in its “5+2” industrial innovation policy in 2018, reflecting global recognition of its benefits. For businesses, a successful transition can lead to the following advantages:
More Attractive Products
A McKinsey survey on American consumer confidence showed that product attributes are closely linked to consumer loyalty.
The Wharton School’s Baker Retailing Center found that consumers increasingly prefer sustainable products and brands to improve the environment, reduce production waste, lower carbon footprints, and focus on animal welfare.
Circular business models can turn waste into assets and emphasize regenerative and recyclable materials, addressing waste reduction, pollution, and biodiversity loss.
Stronger Customer Relationships
In a linear economy, companies sell new products to the next production line, leaving customer interactions to downstream partners. In a circular business model, continuous dialogue with all parties in the business ecosystem is necessary throughout the product lifecycle.
Companies provide products as services, while customers pay for limited-time use, with companies retaining product ownership and responsibility for maintenance, durability, upgrades, and end-of-use handling.
Lower Production Costs
Reusing, repairing, or refurbishing products can reduce material and component costs. However, businesses must understand that cost reductions may not be immediate. Long-term investment and decision-making are needed for value creation, acquisition, and delivery when transitioning to a circular business model.
Recurring Additional Income
Circular business models include product-as-a-service and the sharing economy, as well as trading in recycled parts and materials, generating revenue with each resale. Services like repair, redistribution, and refurbishment also bring recurring income, with waste and by-products viewed as assets.
Enhanced Resilience
Defective or faulty products can still provide recoverable components, materials, energy, and other resources. Companies can control production costs and avoid waste through customer deposits or return policies, better resisting supply chain instability, product shortages, and price fluctuations.
Increased Product Usability
Unlike the linear economy, where product ownership leads to low usage rates, the circular economy model increases product utilization through reuse, repair, refurbishment, and upgrades, even if products fail.
Reduced Production Time
The advantages of a circular economy, such as existing products and components, allow for faster and more cost-effective production or maintenance.
Contribution to Climate Protection
The “2020 Global E-Waste Monitor” reported 53.6 million metric tons of electronic waste generated in 2019, averaging 7.3 kg per person, with a projection of 74.7 million tons by 2030. Companies have launched electronic product waste management initiatives.
Compared to traditional methods, recycling, repairing, refurbishing, and reusing circular products require less energy and have a smaller environmental impact, reducing biodiversity loss, deforestation, mining, parts manufacturing, and raw material transport. Organizations using safe disposal methods further reduce environmental impact.
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Global Perspective on Circular Economy Advantages and Disadvantages
The circular economy extends beyond businesses, with industries worldwide joining environmental protection efforts. Globally, the circular economy presents several advantages and disadvantages:
Advantage
Reduced Raw Material Dependence
With a growing population and increasing demand for raw materials, supplies become limited, leading many countries to rely more on imports.
The circular economy recycles raw materials, reducing risks from price fluctuations, availability, and import dependence, especially for technologies crucial to achieving climate goals, such as batteries and electric engines.
Job Creation
A circular economy can create approximately 7-8 million new jobs globally through redefined business models, technologies, and infrastructure, covering recycling, reuse, repair, maintenance, and refurbishment.
Lower Carbon Emissions
The EU estimates that material production and processing alone account for two-thirds of global greenhouse gas emissions. By realizing product and material reuse, the use of regenerated resources, and maintaining sustainable practices, the circular economy helps minimize resource waste and indirectly reduces total carbon emissions.
Consumer Benefits
Consumers benefit from extended product lifespans, quality assurance for second-hand goods, and increased disposable income due to material reuse.
Maintained Biodiversity
The circular economy’s positive impact on nature includes more efficient use of natural resources, mitigating the climate crisis. For instance, managing waste can prevent severe harm to human health and biodiversity from mismanaged plastic and electronic waste.
Environmental Protection
Circular economy benefits include reduced greenhouse gas emissions, pollution, and waste, potentially decreasing emissions by about 39%. Avoiding billions of tons of CO2 emissions helps achieve the Paris Agreement’s target of limiting global warming to 2°C.
Disadvantages
Complex Implementation
Transitioning from a traditional linear economy to a circular model involves numerous challenges, including implementation costs, logistics, and coordination. Large-scale restructuring may affect operations, supply chains, and product design, requiring significant investment for technological advancement and consumer behavior change.
Limited Available Solutions
Despite the good concept, current solutions for the circular economy are limited and pose challenges for consumers and businesses. High costs and implementation difficulties make finding suitable alternatives or participating in circular initiatives more demanding.
Expansion Barriers
Scaling circular economy policies faces obstacles, such as inadequate full functionality, difficulty complying with legal requirements, and limited incentive measures. Insufficient market demand for circular products and services can hinder widespread adoption.
Technical Limitations
Some products or materials may encounter difficulties under circular economy policies, such as complex electronic products with non-recyclable or refurbishable components. Future technologies and designs must overcome these limitations and develop more circular alternatives.
Consumer Mindset
Transitioning to a circular economy requires changes in consumer attitudes and behaviors, necessitating a shift towards a culture of repair, reuse, and recycling. Changing deeply ingrained habits and preferences can be challenging, requiring ongoing efforts in education, awareness, and communication.
How is the EU Achieving Circular Economy Benefits?
Since March 2020, the European Commission’s Circular Economy Action Plan aims to improve product design, reduce waste, and empower consumers, focusing on resource-intensive industries such as electronics, ICT, plastics, textiles, and construction.
In February 2021, the European Parliament adopted a resolution on the new Circular Economy Action Plan, aiming for carbon neutrality, environmental sustainability, and a fully circular economy by 2050. Policies include enhanced recycling rules, material use and emission controls, promoting sustainable products, and boosting consumer green transition capabilities, alongside reviewing construction product regulations and formulating sustainable textile strategies.
In November 2022, the European Commission proposed new packaging rules to reduce waste and improve design through clear labeling for reuse and recycling, advocating for a shift to bio-based, biodegradable, and compostable plastics.
Common Questions About Circular Economy Advantages
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