Circular business models developed to contribute to a circular economy include four strategies:
1. Closing resource loops
This involves redirecting post-consumption materials and waste so they are reinvested into closed loops instead of being disposed of. This is the core motive behind recycling initiatives.
2. Slowing resource loops
Resource loops can be slowed by extending and prolonging the lifespan of products in use. This strategy can be seen in businesses that offer warranties and other future-oriented services, functionally extending the product lifespan before it needs to be upgraded or replaced.
3. Narrowing resource loops
This strategy is when the use of resources and negative environmental impacts per unit produced are minimized. Engineering practices that, for example, create lightweight car parts or reduce the amount of aluminum needed to produce cans narrow resource loops by requiring fewer materials to manufacture and create less waste when the materials are discarded.
4. Regenerative resource flow
This is a strategy aimed at preserving and enhancing natural capital. Regenerative resource flow aims at restoring or reducing the consumption of regenerative natural resources. This can be seen in rotational grazing practices, replanting of trees, and the use of cover crops.
These circular business models can be implemented through strategies, including but not limited to:
Retain Product Ownership (RPO) - This strategy retains responsibility after the consumption stage with the producer. This could entail rented or leased products, such as car sharing or leased printers.
Product Life Extension (PLE) - This strategy prioritizes product durability, the design of products that last longer, and the creation of value in residuals and product components allowing consumers to reduce the frequency in which a replacement is required. This includes refurbished or remanufactured products and assigning a rewards system for recycled products.
Design for Recycling (DFR) - This includes design strategies that maximize the recoverability of the products' components. Examples range from recyclable or reusable packaging for consumer goods to building components such as walls or pillars being easily removed and moved to another project.
Industrial symbiosis - Also known as eco-symbiosis. This process focuses on reinvesting waste products from one process or industry into inputs in a different process or industry. The Kalundborg model in Denmark, as the model includes six manufacturing facilities that reinvest waste products back into each other as inputs. For instance, a coal-fired power generating station produces waste steam, which is used by a pharmaceutical plant and an oil refinery, waste water produced by the oil refinery is used by the power plant.
These strategies are often overlapped and blurred. Atasu et al. [17] suggested these business models provide a framework for corporations to develop circular supply chains that reduce environmental footprints while also promoting economic growth.
Recognizing the importance of the transition to a more CE, the relevant literature to date has focused primarily on methods and processes that facilitate circularity, approaching it as a technical and engineering challenge (i.e., a system of processes) that prioritizes the production side of the economy.
While processes and models are necessary to increase circularity, it is not sufficient to ensure the transformation to a more circular economic system. If these processes are not viewed as profitable or beneficial for involved interest groups, they may or may not be adopted in practice. Threats to the acceptance of these strategies could include high costs, adverse impacts on production quantity or quality, specialized knowledge or skill needs, uncertainty, and negative consumer reactions.
A circular economic system is equally a system of energy flows and materials as well as a system of markets and market forces. For every secondary product associated with or resulting from circularity, there is a market with supply and demand conditions affecting consumers and producers of the recovered secondary product in question.
In this context, an understanding of the system-wide market and welfare impacts of circular economic processes, the economic costs and benefits associated with these processes, and other socioeconomic factors affecting their adoption and market acceptance and success is of paramount significance for:
- Assessing their market potential and economic viability
- Identifying areas where potential market failures could potentially exist (i.e. incomplete internalization of these benefits of increased circularity may result in the market forces failing to produce the desired outcome/circularity)
- Designing policies and strategies that can induce socially desirable market outcomes/level of circularity
In addition to highlighting the need for an increased emphasis on the economics of the CE, the paper has two additional objectives. The following pages will include a general history of the literature, and after that will explore these additional objectives:
A. Develop a general framework that illustrates the transition from a linear to a circular economic system and the key areas involved in such a transition
B. Highlight the economic issues that arise during the transition to increased circularity and the policy options available to facilitate a successful transition.