Introduction to circular economy business models

What is the circular economy?

To the present day, economic growth has relied on the increasingly extensive use of cheap and abundant resources. In this linear economic system, primary resources are extracted, manufactured and discarded. The circular economy (CE) has been developed as an alternative to this model and argues for a decoupling of rising prosperity from growth in resource consumption (Preston, 2012). It is a broad concept, which is underpinned by many different theories and concepts such as cradle to cradle (C2C) production, regenerative design and industrial ecology1.

Various attempts have been made to define what a CE is. For instance, the Ellen MacArthur Foundation defines the CE as one ‘that is restorative by intention’ and which aims to ‘enable effective flows of materials, energy, labour and information so that natural and social capital can be rebuilt’2. Here, the term restorative refers to post-consumer material flows that are fed back into original manufacturing activities as inputs. Preston (2012) states that the CE involves ‘remodelling industrial systems along the lines of ecosystems’ and closing the resource loop so finite resources are captured and reused. Meanwhile, the European Commission describes the CE as ‘re-using, repairing, refurbishing and recycling existing materials and products’ with a focus on managing the lifecycle of products and closing the resource loop3.

While a clear and concise definition of the CE is generally lacking, there are a few common features that are widespread throughout the literature. Arguably, one of the most important prerequisites for a CE is the formation of closed feedback loops (Preston, 2012; Ellen MacArthur Foundation, 2013), which draws upon the concept of cradle-to-cradle design. Closed feedback loops ensure that material flows are captured and reused again, either as raw materials, products or components. Specific activities are required to facilitate this process including remanufacturing, refurbishment and repair. Such loops ensure resources are more efficiently used whilst also reducing the need for virgin raw materials. Thus what is regarded as waste in the linear economy can be turned into a resource in the CE and this has given rise to the popularity of the term “waste is food”4.

Shifting from the sale of goods to services, known as access-over-ownership, is another common feature across the literature. Access-over-ownership challenges the concept that individuals require ownership of a product, when in fact many may just be looking for the service that the good provides (The Crowd, 2014). Renting and leasing are therefore key activities whereby the service provider retains ownership of the good and the consumer accesses the service(s) it provides. This not only incentivises the manufacturer to provide a high quality and durable good, but also reduces the quantity of the goods manufactured, thus reducing the consumption of raw materials5.


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1 The circular model - brief history and schools of thought, Ellen MacArthur Foundation accessed on 18/02/15 at: http://www.ellenmacarthurfoundation.org/circular-economy/circular-economy/the-circular-model-brief-history-and-schools-of-thought.pdf

2 Towards the Circular Economy, Opportunities for the Consumer Goods Sector (Vol. 2, pg. 26), Ellen MacArthur Foundation, accessed on 26/05/15 at: http://www.ellenmacarthurfoundation.org/business/reports/ce2013

3 Moving towards a circular economy, European Commission, accessed on 28/05/15 at: http://ec.europa.eu/environment/circular-economy/index_en.htm

4 The circular model - an overview, Ellen MacArthur Foundation, information available at: http://www.ellenmacarthurfoundation.org/circular-economy/circular-economy/the-circular-model-an-overview

5 Information accessed at, on 31/07/14: http://www.recoup.org/p/214/ellen-macarthur-foundation