How the circular economy can mitigate damage to nature

The economy of reuse of raw materials will reduce the production of human waste by up to 80%. OECD analysts assessed the benefits and “pitfalls” of the circular economy, as well as ways of state support

The circular economy – also known as the circular economy – is an alternative to the classical linear economy based on the principle of “production – use – disposal”. The task of the circular economy is to use renewable resources as widely as possible and, ideally, to switch to waste-free production. Repeated use of the same material as a raw material will help minimize economic damage to the environment, analysts are sure of the Organization for Economic Cooperation and Development (OECD) – the “club” of the 36 most developed countries in the world. In their study “Circular Economy Business Models”, they looked at the main challenges and opportunities of the circular economy and how governments can support its implementation.

Cyclical business models are changing the direction of the movement of products and materials throughout the economy, thereby helping to reduce the negative impact of the extraction, use and disposal of these materials on nature. It is not only about improving a specific production cycle or factory, but in general about changing the process of production and consumption. For example, not just managing natural resources more efficiently, but not using them at all. There are five main areas of such business models.

1. Model of cyclic delivery – replacement of traditional (primary) sources of raw materials with renewable or biological materials, recycled materials.

2. Model of recycling — processing of waste into secondary raw materials with subsequent use.

3. Life extension model – slows down the turnover of products in the economy, thereby reducing the rate of generation of new waste.

4. Sharing model – sharing (sharing) of one product by different consumers, which reduces the demand for new products.

5. Service models are built around service delivery rather than product sales, encouraging the development of environmentally friendly products and responsible consumption.

At the same time, it cannot be said that the scope of these areas is rigidly established: many companies combine one or another business model. For example, an enterprise can produce certain products, process them and at the same time provide certain services within the framework of the “green” economy. Also, business models do not exist in isolation – if one company chooses a certain direction for itself, its partners can choose a related business model.

In general, analogues of these models have existed for centuries, such phenomena as rent or leasing can serve as examples. The difference is that in the modern world, these models are becoming more complex and diverse. If we are talking about a car, we can think of both the use of recycled or recycled materials for spare parts and carsharing. The latter is especially true for those regions where mobility for a person is more important than the very fact of owning transport.

By closing the resource chain and slowing down the movement of products within the economy, cyclical business models reduce the negative impact of economic activity on the environment. For example, using recycled rather than non-renewable resources in manufacturing can reduce greenhouse gas emissions by up to 90%, depending on the industry. The recovery of fully used products will reduce waste generation by up to 80%.

There is little practical evidence on the economics of sharing, but sharing the same product should also reduce environmental damage. Here, the shift from ownership to access creates many new possibilities in product design, consumption, and ultimately disposal. For manufacturers, this is an incentive to create durable and easily recyclable things. For consumers, paying not for the product but for the service it provides will inevitably lead to behavioral shifts. According to various sources, those who often resort to carsharing in urban conditions reduce the average distance traveled by car by 15–40%.

At the same time, several obvious risks remain associated with the introduction of cyclical business models.

• Increasing the production of biological materials will lead to changes in land cover, and this will put additional pressure on the planet’s ecosystem and biodiversity.
• Without proper control, recycling and recycling of materials on a massive scale will make society more vulnerable to the toxic substances contained in these raw materials.
• A side effect of the spread of the sharing model may be a departure from the principles of sustainability. For example, the development of carsharing will make travel by private car more popular at the expense of public transport.
• In addition, the cheapness and convenience of the sharing economy releases a certain amount of money from citizens, which can be used to increase consumption with a corresponding negative effect on nature.

Admittedly, the market share of cyclical business models is now mostly low, except for a few narrow economic niches. For example, this is the principle of recycling raw materials in the steel industry. On the other hand, the lack of penetration of cyclical models also means that their market share has room to grow.

Already now we can say that the use of some models is growing at a faster pace than the market and this is largely due to the development of technology. We are talking about progress in general – from the improvement of manufacturing to the widespread penetration of the Internet, smartphones and related services. In ten years, Airbnb has gone from curiosity to the biggest player in the short-term rental market. The number of car sharing users in the world is now growing at an average annual rate of about 65%.

Other business models can be called already quite mature, having passed the test of time. For example, over the past 40 years, the share of recycled materials in the production of industrial metals has ranged from 15 to 35% in different years. Expanding the market share of proven cyclical models will require comprehensive government solutions.

Ultimately, the transition to a markedly more resource-efficient economy, in which the environmental costs associated with production and consumption are markedly lower than the current ones, will require deep insight into the life of these cyclical business models. Government policy can play an important role in overcoming barriers to the competitiveness of these models.

• For example, to ensure that the costs of production and consumption of a product for the environment are fully reflected in market prices.
• Promote cooperation along the entire production chain within and between sectors of the economy. For example, creating industrial clusters, supporting online material markets, establishing a recycling certification system, and so on.
• Make sure that the legal and regulatory framework is consistent with the task of promoting cyclical models, and not helping to maintain the status quo.
• Improve information and education programs to explain to citizens the unintended consequences of their behavior as consumers. This includes indirect steps such as product labeling requirements.
• Finally, directly support the production of products of the cyclical economy or the demand for them. The first includes the introduction of environmental design standards, extended producer responsibility, and targeted funding for research and development. The second is the differentiation of VAT rates, product labeling standards and even special “green” public procurement.