FAQs: Understanding and Transitioning Towards a Circular Economy

Much economic activity is currently characterized by a linear process of ‘make-take-waste’, in which finite resources are extracted to make products that are used—often not to their full potential—and then thrown away. For example, between 2018-2023, the world consumed over 500 gigatons of materials, equivalent to 28 percent of all the materials humanity has consumed since 1900.

Such developments have driven an increasing interest in the idea of a ‘circular economy,’ whereby processes of ‘make-take-waste’ are replaced by processes of ‘reuse-repair-recycle,’ thereby strongly reducing both resource extraction and waste. More substantively, various countries have implemented policies to raise the degree of circularity in their economies.

What exactly does a circular economy look like in practice? This blogpost explores some frequently asked questions regarding the circular economy, as well as current initiatives and potential opportunities for transitioning into a circular economy.

What is the circular economy?

There is no single definition of the circular economy, though processes of repair, reuse and recycle are central to most definitions. It is generally understood that transition to a circular economy involves a reduced demand for material consumption and a strong focus on preventing the generation of waste. While most economies do practice at least some level of circularity, some countries are clearly more circular than others.

Finland is a recognized leader in raising economic circularity. They published the first national roadmap for a circular economy in 2016, which has recently been updated in its ambition and scope. The plan incorporates sustainable design, waste reduction and resource efficiency. Finland’s pioneering work has subsequently functioned as starting template for several other countries.

The Netherlands, Sweden, Denmark, Norway, Germany and France can also claim to be proactively building a circular economy. And, in November 2020, the European Union (EU) created an EU-wide circular economy action plan. Efforts to advance a circular economy have also been made in the United States and Australia.

Japan’s history and cultural values have been oriented towards recycling, reusing and reducing waste for a long time, which also makes it a leader in this space. Several Southeast Asian countries as well as countries in Latin America have also initiated measures to build a circular economy. Efforts in these regions have largely focused on creating a regulatory and institutional environment favorable to the circular economy, increasing investment in the circular economy, and promoting innovation, education and skills to redesign production methods and reduce resource use and production of waste.

Measuring the degree of circularity

Exactly how to measure the circularity of an economy has been a topic of debate as different approaches have produced different results. However, there has been some broad agreement over operational metrics and processes of implementation.

For example, in 2023, the Organization for Economic Cooperation and Development (OECD), the United Nations Economic Committee for Europe, and the Conference of European Statisticians co-produced Guidelines for Measuring the Circular Economy, which demonstrates the growing consensus. The report provides a headline definition of a circular economy, an overall conceptual framework, a set of harmonized indicators to monitor progress along with guidance on various measurement considerations including integration with the System of Environmental-Economic Accounting (SEEA) that is already well established in most countries. The report also offers practical guidance producing the core indicators, achieving required institutional collaborations and identifying what indicators lie within or outside the responsibilities of national statistical offices.

Circularity and complementary goals

The circular economy is just one tool for thinking about and promoting better economy-environment interactions. There are several other concepts that are very close to the idea of the circular economy. These include the wellbeing economy, donut economy, sharing economy and the steady-state economy. These concepts are all closely linked and might be nested inside one another as they have a common goal of addressing the current environmental challenges to create a more sustainable world.

Case studies on how the concept of circular economy plays out in practice shows that transition to a circular economy has a major impact on achieving the goal of sustainable development. For example, a survey of 10 projects designed to transition to a circular economy have resulted in several positive environmental outcomes, such as reduction in energy and material consumption levels, reduced carbon emission levels and stronger cooperation between producers and consumers.

It should also be noted that there are a wide range of measures of economic and social progress that will remain relevant to policymakers to achieve circularity and other complementary goals. Examples of such measures include the Genuine Progress Indicator, the Better Life Index and the Happy Planet Index, among others. These measures either add to or serve as alternatives to standard economic measures such as gross domestic product (GDP). Hence, it is worth understanding and evaluating these complementary tools to achieve an inclusive view of circularity.

Is the goal of circular economy feasible?

The concept of a circular economy has the appeal of being easily understood and accepted by the average citizen. The focus on reuse, repair and recycle is in no obvious tension with standard ideological positions from left to right, and it should also appeal to economists focused on improving efficiency in resource use. Hence, promoting a circular economy should be an idea that receives wide support.

The level of circularity could also become a competitive point of comparison between countries and something that voters could rate their government’s performance on. For example, a recent report on the circularity of the Australian economy noted its current circularity rate was only 4 percent, but it could be raised to 32 percent without any real change to the structure of the economy. It is easy to imagine how an electorate that is familiar with the concept of a circular economy could put a government under pressure to do better.

How can governments best advance to a circular economy?

Of course, advancing the circular economy is not without its challenges, including addressing demand-side changes around consumption, developing and implementing appropriate regulations rather than relying heavily on voluntary agreements and addressing the causes of waste.

Recent analysis of Finland’s experience offers three key lessons as to how best to promote circularity: First, design to fit the local context rather than import a generic template from outside. Second, foster cooperation rather than top-down instruction. This includes fostering cooperation across borders given that most countries are too small to achieve fully circularity by themselves. Third, invest in education all the way from day care and primary school to university level.

Notably, these lessons seem consistent with more general design principles developed by Elinor Ostrom for the management of environmental and other common resources.

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