Three myths about the circular economy

A circular, rather than linear, economy may be the solution to many of our environmental problems. A circular turn requires businesses to rethink how their business operations are organized. When striving for circularity, businesses have to take into account where their resources come from and what happens to their products after use, i.e. the end-of-life of products. This is all good. Since the circular economy has become so popular lately, however, we also find some myths within this debate. I’ve found at least three.

  1. Renting or leasing is more circular than owning. Circular companies sell services (or ‘functionality’) rather than products. This is not universally true, as Agrawal, Ferguson, Toktay and Thomas (2012) have shown. Renting or leasing is not automatically more environmentally friendly. Moreover, changing your business to a service instead of selling a product may be costly for the business, as discussed at a workshop for Vinnova-funded research projects in January. Most importantly, whether you own or lease a product says nothing about the circularity of the product itself i.e. if it is recyclable. The electric scooters that people rent are a prime example of this fact.
  2. Companies need a ‘circular business model’ to become circular. To the opposite, in our Vinnova research project, we found that most companies did not change their business model. Instead, they collaborated with others to achieve circularity for some part of their business, to achieve circular packaging or waste flows, for example. In many cases, companies depend on markets for circular materials, what some call ‘open loops’.
  3. Circularity is achieved through technical solutions. We definitely need technical solutions but they also require that customers and consumers behave a certain way, in order to close the loop. For example, when products have been used, they have to be returned somehow to be able to be reused or recycled. Financial incentives, such as deposit-refund systems, are efficient and get customers to return used products, but convenience is equally important and not least learnt social behavior. Thus new technical solutions have to be matched with necessary behavioral change to work. This is quite often overlooked in the circular economy debate.

The latter point is also what Anna Kremel and I study in our new Formas research project in collaboration with Returpack, Kantar SIFO and Ungdomsbarometern (read about it in English here).

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