The remaining pages of this month’s issue focus on the concept of Circular Economy—a model of production and consumption that seeks to eliminate waste and protect our environment, while promoting growth, development, and innovation. What is the concept of the Circular Economy, and how did it evolve? This article provides a global overview of the topic before the following pieces take you deeper into some of the exciting work underway on this topic in Armenia and other countries.
Text : Nazareth Seferian
Today’s linear approach
Here’s a riddle. What was special about the date November 17 in 1984, September 2 in 2004, and August 1 in 2024? The answer is a couple of paragraphs away, and here’s a hint—when was the last time you purchased a brand-new item but used it for a short period of time?
Economics students often hear that buying a new car from a dealership is foolish—you lose around 10% of the vehicle’s value before you have even driven out of the parking lot. And yet, consumers around the world buy brand-new cars daily and replace them within a few years. We also buy new clothes that we get rid of when fashion trends change, when we get bored, or when the first signs of wear appear. Our economy runs on the concept of a linear value chain—raw materials are sourced, processed, and assembled into products, then sold to consumers who use them for a certain period of time before discarding them, generating waste.
Perhaps this system could function on a planet that has endless resources and enough space to store infinite waste without harm to its systems. But individuals, organizations, and governments around the world are increasingly waking up to the fact that our planet cannot continue with this “take, make, waste” linear economy model for much longer. Several leading environmental conservation organizations, like the Footprint Data Foundation and WWF, have been working on a concept called Earth Overshoot Day—calculated by estimating the total resources utilized on our planet during the year and comparing it with the Earth’s capacity to regenerate those resources, distributing these numbers across calendar days. Once we exceed what our planet can regenerate, we enter the year’s “overshoot” period. And that is the answer to the riddle above—in 1984, we had used up the year’s resources by November 17, while by 2004, we had already overshot our planet’s capacity by September 2, and in 2024, by August 1.
So, on the one hand, we are living on borrowed time—our planet lacks the capacity to regenerate the resources we consume, while also creating waste that is destroying our ecosystems and posing a threat to our quality of life and that of other living beings. On the other hand, we are disposing of items that still have value in them—just because we have been driving the same car for 10 years, it does not mean that it is ready for the scrap heap, nor should the first tear in our jeans suggest that it is time for us to buy a new one.
And this is where the concept of Circular Economy enters the scene.
Environmental and political concerns
For a long time, our planet had seemed limitless in its capacity to provide resources and cope with our economic growth. By the 1970s, however, it became clear that we are virtually in a “closed system”—our natural resources are finite or regenerate slowly, and whatever waste we produced stayed with us in this system, it did not magically “disappear”. The term “Circular Economy” was first coined in 1988 by Allan Kneese in this context, recognizing that linear option was no longer viable. He and other economists and environmentalists envisioned an approach where products wouldn’t be disposed of as waste but rather “looped back in” to the value chain in various ways.
In 2005, Ellen MacArthur sailed solo around the world in just 71 days, setting a new world record. Her trip was nonstop, meaning that she had to ensure that everything she needed would be with her from Day 1. When she emerged from her boat after breaking that record, she had a new insight about the world around her. “No experience in my life could have given me a better understanding of the definition of the word ‘finite’. What we have out there is all we have. There is no more,” she said during a 2015 TED talk. She quit her sailing career and established the Ellen Macarthur Foundation, which is one of the leading institutions promoting Circular Economy in the world.
There are also public bodies like the European Commission and other governments that have been quite active in pushing Circular Economy practices and building policies around them. This push comes not only from environmental concerns, but from international politics. There is a clear understanding that rare earth minerals and metals are located in a few countries around the world, and these are linked to all kinds of local and regional conflicts and other considerations of political power.
China is the world leader in rare earth mineral deposits, and it cut exports of these resources sharply in 2010 to protect its own manufacturing capacity. The Democratic Republic of Congo supplies over 80% of the world’s cobalt. Russia leads palladium production. The list goes on, each with a resource that is crucial for one emerging industry or another—chips for artificial intelligence, renewable energy, and more.
Circular Economy is built around the idea that natural resources do not need to be constantly extracted from the earth—the existing products that are in use can eventually be recycled to deliver the same resources that made them.
Before they get to the point of recycling, they can be disassembled and reused elsewhere. Before they are reduced to their parts, their lifespan can be extended to maximize value, or they can be reused by several customers after the first one.
This circularity concept aligns naturally with the sustainability movement and the United Nations’ Sustainable Development Goals for 2030. The mantra “reduce, reuse, recycle” has now become quite common for many consumers. But to what extent is this really a sound approach to economic growth?
The economics of circularity
The link between a circular approach and long-term economic growth is clear, at least in theory—if we are running out of natural resources, we cannot sustain the economy forever.
At some point, we will not be able to manufacture a certain product, because a key resource we need will be missing. However, Circular Economy also offers short-term economic benefits through improved supply-chain management, cost reduction, and innovation opportunities.
Imagine your company sells take-away coffee to customers in plastic or cardboard cups. Each cup costs a fraction of a dollar, but these numbers add up if your sales reach millions over several months. So you switch to a system where you incentivize customers to come with their own reusable mugs, or you let them “borrow” a mug from your inventory for a deposit. You no longer have to order a new batch of take-out cups every week, you can manage a stock that will allow you to serve your customers in these multiple-use mugs. This will save you time and money. Also, when the customers who “borrowed” mugs come back to return the mug and reclaim their deposit, you create natural opportunities for repeat sales, and the business case for circularity becomes more powerful with increasing consumer awareness about the environment. If your coffee company shows that it cares about the planet, you could be positively differentiating yourself from your competitors who offer coffee like yours but do not share the same concerns as their customers.
Meanwhile, the innovations emerging in Circular Economy space are benefiting both businesses and consumers. Remember how quickly a new car from a dealership loses value? The concept of carsharing is now picking up pace in many countries. Most people do not need to own a car, they simply need to get from one place to another in a convenient manner. Carsharing allows them to do this by giving them the option to choose a free vehicle whenever they need one and then pay only for the period when they use it. No more car loans to buy a vehicle, no tax, no maintenance costs. Just the ability to get into a car and go where you need to go.
Interestingly, the companies that make cars are jumping on board. Some of the largest car-sharing companies in the world are actually owned by car manufacturers. This allows them to add a new revenue stream to their business with higher profit margins. They no longer need to manufacture a car for each customer—one car can now serve multiple drivers at various times of the day, week, month, or year. And finally, cities can benefit too – fewer cars that take up space, even when they are not in use, allow more territory for other things like parks and playgrounds.
New design, new mindset
But the transition to circularity is not as easy as it looks. Many of the products we make today are not created with circularity in mind.
If you had a mobile phone twenty years ago and its battery had a problem, what could you do? For most models, you could open up the phone yourself and take the battery out, replacing it with a new one. Today, it is very rare for most smartphones to have detachable batteries or to be designed in a way that allows users to open them up. The same is true for most electronic devices – manufacturers are still quite attached to the idea of “planned obsolescence”. Technology keeps developing, and your device with high-end graphics or excellent processor speeds becomes quite average just a year after you bought it, signaling that it is time to buy a whole new device. A transition to Circular Economy will require a rethink in the way many products are designed and packaged.
And consumers will also have to rethink their priorities and preferences. In many countries and cultures, buying something new is a signal of success and achievement, which means second-hand items are an option only in case of financial difficulty. Owning a car means having a status symbol, not just a means of transport.
Governments clearly have a role to play when it comes to creating conditions that could encourage circular practices among businesses or raise awareness among consumers. Non-governmental organizations and other stakeholders, like educational institutions, are also crucial when it comes to promoting the right consumer practices, creating greater demand for circularity. The private sector steps up when it makes business sense to do so, and this could come from a combination of regulatory requirements, financial incentives (like new revenue streams or reduced costs), as well as customer demand.
Ellen MacArthur sees the challenges but remains confident about the future of Circular Economy. She says, “When young people see the economy through a circular lens, they see brand new opportunities on exactly the same horizon!”
Join us on Telegram