Introduction to Circular Economy PDF

EKA University of Applied Science Tatjana Tambovceva, Jelena Titko INTRODUCTION TO CIRCULAR ECONOMY EKA UNIVERSITY OF APPLIED SCIENCE Tatjana Tambovceva, Jelena Titko INTRODUCTION TO CIRCULAR ECONOMY Publisher: Ekonomikas un kulturas augstskola Reviewers: Dzintra Atstāja, Petra Škerl ISBN 978-9984-24-231-6 / e-ISBN 978-9984-24-230-9 UDK 33(07) The book is developed within the project ''Online Master Programme for Circular Economy'' [CIRCECO]. CIRCECO is financed and supported by the European Commission, Erasmus + Programme, Key Action 2 – Strategic Partnership (grant agreement No. 2017-1-MK01-KA203-035392). 2 3 PREFACE This book is developed within the framework of the International project „Online Master Programme for Circular Economy (CIRCECO)”. Project coordinator – European University – Skopje (R. of Macedonia), project partners – Zelena Infrastruktura, Green Infrastructure Ltd. (Croatia), Fakulteta za komercialne in poslovne vede (Slovenia) YES Foundation (Macedonia) and The University of Economics and Culture (Latvia). Project period – December 2017 – January 2020. CIRCECO is financed and supported by the European Commission, Erasmus + Programme, Key Action 2 – Strategic Partnership (grant agreement No. 2017-1- MK01-KA203-035392). CIRCECO project’s specific goals are as follows:  Circular Economy joint research – conducted in collaboration with participants from the business sector, researchers, experts, professionals and students in order to analyse economic indicators and potential benefits and risks of transitioning from linear to circular economy.  Support and implement models for effective and practical learning through raising awareness and inspiring students to rethink the economic future from the viewpoint of circular economy; establish innovative educational practices and training platforms so as to speed up the transition from linear to circular economy; provide the latest information, insights, and views implemented in the Master Study Program for circular economy needed to accelerate the transition; foster innovation, creativity and entrepreneurial skills.  The support and development of innovative business models focused on a renewable and self-sustainable economy, and employ innovations resulting from the circular economy and the cooperation with the business sector; implementation of a comprehensive business initiative for circular economy and support throughout the implementation stage; strengthening the knowledge-transfer infrastructure.  Creating an Online platform, enabling the setting up and implementation of an on-line study programme, allowing students and staff to log in, upload and download learning materials, forum discussions, as well as providing an option for live consultations and lectures.  Promoting the benefits of the innovative Online Master Study Programme for Circular Economy and raising awareness through relevant electronic and press media, in order to inform about the latest findings, reports and achievements in the field of circular economy and exchanging views of all interested parties.  Increased awareness in the importance of circular economy, not only among the business sector, but for the wider audience as well. 4 The main goal of this book is to increase students’ awareness about the significance of circular economy. The learning book is designed to provide a comprehensive overview about the global issues our society is facing nowadays, solutions suggested by world, European and national organizations, and specifically emphasizes the role of the circular economy to deal with environmental, economic and social problems. This book will help students to be acquainted with the new terminology, to understand the relationships between various associated concepts and models, and to generate ideas about their own research in the field of circular economy. The book “Introduction to Circular Economy” consists of 11 chapters. Its structure was used as a basis for developing an online course “Introduction to Circular Economy” within the framework of the project. The questions for individual studies at the end of each chapter will help students to systematize knowledge and to fulfil the tasks within the course. ABOUT THE AUTHORS Tatjana TAMBOVCEVA (Dr.oec.) is a Professor at the Riga Technical University (Latvia). She has more than 25 years’ experience in lecturing both at the undergraduate and graduate levels. Her research interests focus on circular economy, green production and consumption; change of consumer behavior; corporate social and environmental responsibility; sustainable building, real estate management, project management and use of ICT in many areas. She has published more than 150 articles in national and international academic journals. She is an author to a number of specialized books and reports on Management, Sustainable development and Project Management. She is a member and an expert in a number of international Societies, Councils and Foundations. She is the Managing Editor of the Scientific Journal “Economics and Business” and Head deputy of the Department of Civil Construction and Real Estate Economics and Management at the Riga Technical University in Latvia. Jelena TITKO (Dr.oec.) is an Associate Professor at the EKA University of applied Sciences (Latvia); she also holds an administrative position of a Vice-Rector for Science and International Cooperation. She is an expert in the fields of Education and Economics and Entrepreneurship of the Latvian Council of Science; an author of more than 60 scientific papers in the field of economics, business, management and education; an expert representing Latvia in the Eurydice study “Digital Education at School in Europe”. She is an Editor-in-Chief of the journal “Economics and Culture” and a member of a scientific board of the journal “Business, Management and Education”. 5 CONTENTS 1. CIRCULAR ECONOMY AS A RESPONSE TO GLOBAL ISSUES........... 10 2. CONCEPTUAL FRAMEWORK FOR CIRCULAR ECONOMY................ 15 2.1. Emergence of the concept and current definitions................................... 15 2.2. Circular economy and the related concepts............................................. 20 3. CIRCULAR ECONOMY ACTIVITIES......................................................... 29 3.1. Global initiatives towards circular economy............................................ 29 3.2. European initiatives................................................................................. 31 4. PRINCIPLES AND BUILDING BLOCKS OF THE CIRCULAR ECONOMY 34 4.1. Principles of the circular economy........................................................... 34 4.2. Circular economy building blocks........................................................... 42 5. ACTION AREAS OF THE CIRCULAR ECONOMY.................................. 48 5.1. Key action areas of the circular economy................................................ 48 5.2. Priority areas of circular economy........................................................... 52 5.3. Assessment of the circular economy........................................................ 56 6. CONCEPT OF LIFE CYCLE AND INTRODUCTION TO LIFE CYCLE ASSESSMENT........................................................................................................ 60 6.1. Concept of life cycle................................................................................ 60 6.2. Life cycle thinking................................................................................... 63 6.3. Life Cycle Assessment............................................................................. 64 6.4. LCA Methodology................................................................................... 65 7. INTRODUCTION TO ECO-DESIGN........................................................... 71 8. SUPPLY CHAIN............................................................................................ 84 9. OVERVIEW OF CIRCULAR ECONOMY BUSINESS MODELS.............. 89 10. INDUSTRIAL SYMBIOSIS....................................................................... 99 11. BARRIERS TO CIRCULAR ECONOMY............................................... 105 REFERENCES...................................................................................................... 112 6 INTRODUCTION Modern economic realities require a fundamentally new approach to the implementation of economic activity, since commodity producers are currently experiencing serious restrictions, caused by a shortage of natural resources and unprecedented degradation of ecosystems. In order to ensure sustainable development, which presupposes economic progress, environmental safety and improvement of the quality of life of the population, today a different development paradigm is needed. In the world, at the moment, the traditional model and the economy are gradually being revised, and a new development paradigm, based on the concept of a green economy, is gaining more and more resonance. The Organisation for Economic Co- operation and Development (OECD) officially adopted an economic policy of “green” growth as a strategic direction for the development of all its members in 2009. It was adopted for the long-term period, i.e. up to 2030, as well as up to and beyond 2050. The main advantage of a circular (green) economy is that it not only saves nature, but also ensures further economic growth without increasing consumption (and landfill growth), as well as increases the number of jobs. Since the main task of this economy is to ensure maximum efficiency of each step and process in the particular product or service life cycle, one of its priority directions is concentrated on waste reuse. Many countries have a linear economic model based on the principle of “take, make, dispose”. For this reason, the traditional economic model is being reinterpreted, and more and more attention is being paid to the concept of a circular economy, based on the principle of “take, make, reuse”. Most experts believe that a closed-cycle economy (or a closed-loop economy, a cyclical economy, a circular economy) is a way to find harmony between the economy and the environment. For many years, nature and the economy have been in conflict; moreover, it is impossible to give priority to one of the parties of this conflict without detriment of the other. The economy of a closed cycle becomes the subject of a wide range of studies not only in European countries, but also throughout the world. Experts consider it as a potential strategy for the development of society, which can improve well-being, while weakening the dependence of states on raw materials and energy. Many entrepreneurs see cyclical economy as a way to boost economic growth and increase profits. Many governments are actively involved in discussing the issues of attractiveness of the transition to a closed-cycle economy, its impact on the number of jobs, economic growth and the environment. Circular economy can become a key tool in the fight against pollution, biodiversity loss, climate change and growing inequalities. But to do that, the causes of the current problems need to be looked at, remembering that local activities can influence global change. Consequently, there is a need for cooperation at the level of governments, society, companies and individuals, which can serve as a common basis for the implementation and development of the circular economy. 7 Circular economy can also bring significant economic, social and environmental benefits on a global scale, becoming a paradigm for new economic development. Circular economy envisages a change from the current model based on ‘end-of-life’ concepts to the new model of production and consumption. The new model aims at reducing resource consumption, recycling and reusing various products and materials in all production, distribution and consumption processes. Circulation promotion aims to accomplish sustainable development, because the circular economy is linked to many of the United Nations' endorsed 17 Sustainable Development Goals (SDGs).1 A circular economy is a regenerative or regenerative production system. It is also often possible to find other names for this approach, such as green economy, closed- loop economy, and non-waste economy. This approach provides for replacing the concept of “end-of-life” repair, shifting the interest towards the use of renewable energy sources, completely eliminating the use of toxic chemicals that interfere with product reuse, and waste elimination through the improvement of design, materials, products and, as a result, the entire business model. A wasteful lifestyle, mainly in industrialized countries, has led to a decline in ecosystems, limited resources and an increasingly unstable climate. At the same time, population growth and the much-needed increase in per capita income in low-income countries put additional pressure on resources. Business circles often see the environmental policy development as a threat to competitiveness, but there is reason to consider resource efficiency as an opportunity. The current economy is built on the principle of “quick turnover”. The faster the consumptions items are replaced, the better it is for manufacturers. As a result, the Earth's resources are managed very inefficiently. The transition to a circular economy through reuse will bring many benefits. In the 1981 Report of the European Commission “Jobs for tomorrow: the potential for substituting manpower for energy” (Stahel & Reday-Mulvey, 1981) it is said, that the circular economy, in contrast to the production of new goods, will create local jobs and reduce resource consumption, greenhouse gas emissions and waste. The findings presented in this report have remained relevant also nowadays. The economic effect of introducing the concept of a circular economy is expressed in reducing the consumption of raw materials and energy resources, and as a result – in reducing demand for them and price volatility in resource markets; as well as an increase in the number of jobs due to the formation of new sectors of the circular economy (Van Buren et al., 2016). The acceleration of urbanization leads to an incentive for the state to promote the development of a circular economy. The advantages for enterprises are expressed in the strengthening of relationships with partners along the entire value chain, increasing innovation and customer loyalty, the emergence of additional competitive advantages and new sources of profit (Firnkorn & Muller, 2012; Shafiee & Stec, 2014), and for consumers – in the consumption of environmentally friendly products and, in some cases, a decrease in their cost. 1 United Nations. Sustainable Development Goals. 8 The circular economy provides the direction of material resources for reuse within the existing production cycle, which leads to a number of positive and negative consequences. It was found that despite the presence of negative effects, the benefits from the development of the circular economy are significantly higher. Along with the long-term benefits of the transition to a circular economy, the following challenges exist: - the difficulty of promoting systemic changes; - economic challenges (a circular economy may be unprofitable in the short term); - imperfect markets (lack of necessary products and infrastructure, competition, knowledge and / or incentives in the market); - imperfect regulation (imperfect legislation and / or implementation); - social factors (insufficient knowledge and skills related to the circular economy); - difficulties in obtaining adequate funding; - lack of harmonized procedures in various fields. The introduction of a circular economy requires transformations that facilitate the identification and use of reserves in the chain of use of material resources throughout the “product cost cycle”, which is possible only with complex changes, not so much technological as economic and organizational. The transition to a circular economy is accompanied by attracting investments in the engineering and design service sectors, which will take into account recycling opportunities at the product design stage, waste processing technologies and processes, modernization of existing industries to increase resource efficiency and the ability to work on secondary raw materials, and the development of biotechnology-based products. For the development of a circular economy and the creation of conditions that stimulate the attraction of investments in it, it is suggested to: - carry out work to improve the methodology for identifying industries or activities related to the circular economy sector; - develop quality standards for secondary raw materials to increase the level of their involvement in the economy and strengthen the confidence of producers on their part; - improve the reliability and availability of data in the field of waste, which would contribute to better comparisons; - create a public information platform that will allow to not only monitor the development of a closed-type economic system, but also to share information with all participants in this sector. 9 1. CIRCULAR ECONOMY AS A RESPONSE TO GLOBAL ISSUES The Industrial Revolution, which started in the 18th century, was not only the transition from hand production methods to manufacturing, but also the starting point for huge transformative processes within the society. Unprecedented population growth and technological innovations led to increased consumption that, in turn, considering the limited resources, caused the global challenges mankind is facing now. World population reached 7.7 billion people in 2019 (Figure 1).2 Figure 1. World Population Growth from 10,000 BC to today (Source: Our World in Data, 2019) The most visible effects of the growing population are an increase in thr usage of natural resources, environmental pollution and land use changes like urbanisation. According to the forecasts of The Global Material Resources Outlook to 2060, the use of global materials will rise double to those of today (Figure 2). According to Angel Gurría, OECD Secretary-General “Growth in materials use, coupled with the environmental consequences of material extraction, processing and waste, is likely to increase the pressure on the resource bases of our economies and jeopardise future gains in well-being”.3 2 Our World in Data, 2019. 3 OECD, 2018. 10 Figure 2. Key facts and projections from the OECD Global Material Resources Outlook to 2060 (Source: OECD, 2018) The World Economic Forum, which took place in 2016, determined that one of the global risks, that, for the next ten years will mostly concern people and economies, will be the water crisis. Two thirds of the world’s population currently lives in areas that experience water scarcity for at least one month a year.4 According to the World Health Organisation (2019) data “in least developed countries, 22% of health care facilities have no water service, 21% no sanitation service, and 22% no waste management service. By 2025, half of the world’s population will be living in water- stressed areas”.5 Eurostat collects data on total waste in all European countries. According to 2016, the total amount of waste generated by all economic activities and household production, reached 2,538 million tons; of which hazardous waste accounted for 4.0% 4 World Water Assessment Programme (WWAP), 2017. 5 World Health Organisation, 2019. 11 of the total, i.e. 100.7 million tons.6 Global waste, as forecasted, will grow to 3.40 billion tons by 2050 (Kaza et al., 2016). The growth in population and the increase in the amount of waste generated leads to aggravation of global environmental problems. Statistics on water, land and air pollution are depressing. Worldwide, over 80% of all wastewater returns to the environment without being treated.7 World Water Assessment Programme (WWAP) in 2017 analyzed the situation in different income countries and got to know, that high-income countries treat about 70% of the wastewater they generate, upper middle-income countries treat about 38% and lower middle-income countries about 28%. In addition, in low-income countries, only 8% of industrial and municipal wastewater is treated in any form.8 Cumulative carbon dioxide (CO2) emissions in the United States increased to 400 billion tons, which is 13 times more than in the same year of the previous century. The value of the indicator increased 1000! times for a 100 year period in China (Figure 3).9 Figure 3. Cumulative carbon dioxide (CO₂) emissions (total sum of CO₂ emissions produced from fossil fuels and cement) (Source: Our World in Data, 2017) Environmental pollution, in turn, resulted in land degradation (soil erosion), forest degradation, biodiversity reduction and climate change (global warming). The cause of environmental pollution, to a greater extent, is industrial production. The Industrial Revolution has led to the creation of a production system that results in billions of tons of toxic materials being released into water, air and soil, destroying the 6 Eurostat, 2016. 7 World Water Assessment Programme (WWAP), 2019. 8 World Water Assessment Programme (WWAP), 2017. 9 Our World in Data, 2017. 12 ecosystem and reducing biodiversity. The absence of universally implemented environmentally neutral technologies causes pollution of the atmosphere, water bodies, as well as an increase in waste generation. Therefore, ecology needs to be seen as a complex scientific direction that collects and synthesises data on interactions between the environment, people and society as a whole, energy substances and processes in these systems. Circular economy is restorative and regenerative by design. It can be a response to many challenges we are facing now through strategies, such as recirculating a larger share of materials, reducing waste in production, extending the lifetimes of products, and deploying new sharing-based business models.10 Finally, it will have a positive economic effect. Circular economy is an economic model that functions more like a natural ecosystem with some changes.11 Comparing the economic model with the ecosystem is possible because there is no waste in the ecosystem, and there is no waste in the circular economy, and all materials can be reused. Circular economy is an economic activity aimed at energy saving, regenerative environmentally friendly production, circulation and consumption. The circular model is the most successful way to save resources and materials, and constant economic growth. Based on the report of the European Investment Bank12, there are three fundamental drivers of circular economy: 1. Resource constraints: Global demand for resources is rising very rapidly, resulting in ever-increasing shortages of critical raw materials and water. 2. Technological development: The introduction of new technologies enables the development and introduction of new CE business models. Without the development of new technologies and the development of innovative approaches, recycling, block replacement and re-use of resources, as well as the application of new IT technologies, will not be possible. 3. Socio-economic development: Circular models play a very important role in the context of increasing urbanization. Urban areas can easily develop, implement and maintain systems that can collect and return a variety of goods, materials and other resources, and which will also be cost effective. In turn, the opportunities offered by circular economies for companies include: (i) de- risk/ hedge future commodity supply uncertainty and price volatility; (ii) reducing manufacturing costs, (iii) avoided costs and new revenue streams, and (iv) new business opportunities and new markets.13 10 Material Economics, 2018. 11 Towards the Circular Economy: Accelerating the scale-up across global supply chains. World Economic Forum, 2014. 12 European Investment Bank, 2019. 13 ibid. 13 The experts from McKinsey in their 2016 report “The circular economy: Moving from theory to practice”14 concluded that:  By adopting circular-economy principles and integrating new technologies and business models, Europe could achieve “growth within”.  A growth-within model would create better outcomes for the European economy, generating annual benefits of up to €1.8 trillion by 2030.  The circular economy could produce better welfare, GDP, and employment outcomes than the current development path.  A circular economy could benefit the environment while boosting competitiveness and resilience. Based on the viewpoint of the experts from the World Business Council for Sustainable Development15, circular economy can deliver significant benefits for businesses, such as increased growth; innovation and competitive advantage; cost reduction; reduced energy consumption and CO2 emissions; increased supply chain and resource security. The most important result that can be achieved after the transition to a circular economy is reduced consumption of natural resources. This will help both the environment through reduced environmental impact and the economy, such as achieving security of supply through reduced dependence on imports of natural resources (Potting & Hanemaaijer, 2018). Circular economy offers the opportunity to “make better use of the materials already produced, and so reduce our need for new production,… through strategies such as recirculating a larger share of materials, reducing waste in production, light-weighting products and structures, extending the lifetimes of products, and deploying new business models based around sharing of cars, buildings, and more”.16 CONTROL QUESTIONS AND QUESTIONS FOR INDIVIDUAL STUDIES 1. What are the main challenges people are facing now? What are the cause-effect relations between them? 2. What is the situation in your country? Find statistics on main social and environmental indicators to describe. 3. How do you understand the term “Circular economy” after reading this chapter? 4. What benefits can be captured by businesses and society, moving to the circular economy? 14 McKinsey&Company, 2016. 15 World Business Council for Sustainable Development, 2017a. 16 Material Economics, 2018, p. 3. 14 2. CONCEPTUAL FRAMEWORK FOR CIRCULAR ECONOMY 2.1. EMERGENCE OF THE CONCEPT AND CURRENT DEFINITIONS The concept of circular economy gained the extreme popularity among the academicians during the last decades. To show the progress in the number of studies devoted to circular economy issues, a small research has been conducted. Figure 4 demonstrates the exponential growth of the number of CE-related papers, published in different issues indexed in SCOPUS and Web of Science databases – the largest and the most valuable in the academic world databases of peer-reviewed literature. Figure 4. Results of the search in Web of Science and SCOPUS data bases, using the key words “circular economy” (Source: Authors’ compilation) The idea of the circular economy appeared several decades ago. Back in the 1960s, economist Kenneth Boulding (1966) wrote about the “ideal economy”. He argued that it was necessary to manage the available resources as if being in a spaceship: there was no way to hope for fresh produce, and nowhere to store waste and garbage. Boulding introduced the terms of two alternative forms of economy: 1) cowboy economy, i.e. the open economy of the past, and 2) spaceman economy, i.e. the closed economy of the future. In 1969, Otto Schmitt introduced the terms of biomimetics/ biomimicry to describe a “more technical approach of imitating models, systems and elements of nature specifically for the purpose of synthesizing sustainable products through artificial mechanisms which mimic natural ones” (Schmitt, 1969). Back in the 1970s, many scientists, ideological leaders, and also some companies began to speak out in support of a closed-cycle economy, but until recently this model remained only an idea. 15 The increased amount of waste and the scarcity of raw materials, in turn, fostered to consider waste as a resource and to implement the principles of re-using and recycling. In 1989, a new research field of “Industrial ecology” emerged (Frosch & Gallopoulos, 1989). Industrial ecology facilitates the transition from open material and energy cycles to closed ones, thus reducing the wastage of the industrial process (Kronenberg, 2007). The term “Circular economy” was introduced by Pearce and Turner (1990), who developed a new economic model, applying principles of the laws of thermodynamics. The idea was explained later by Čiegis and Čiegis (2008). To date, the active advocates of the cyclical economy are the international consulting company McKinsey&Co. and the World Economic Forum (WEF), while international companies like Unilever, Cisco Systems and Philips implement the principles of cyclical economics. The concept of the circular economy takes its origin from many theories and scientific schools, but all of them are, in one way or another, connected with overconsumption of natural resources. The current concept of the circular economy is based on the foundations of industrial ecology, the environmental economy and the green economy. These concepts have been developed to balance the environmental burden in industrialised countries (Murray et al., 2017; Ghisellini et al., 2016). Due to its comprehensive and multidimensional nature, the concept of circular economy is related to many other concepts. This leads to considering it as a quintessential concept to describe socially- and environmentally- responsible human activities within the production cycle and consumption. In recent years, circular economy in the world has become increasingly popular, emphasizing that resources and their effectiveness are crucial for economic and business prosperity and the achievement of sustainable development goals. The impetus for the introduction and popularization of the ideas of a cyclical economy occurred in 2010, when the former yachtswoman Ellen MacArthur created a foundation under her own name, promoting this approach.17 Circular economy (CE) is a paradigm for economic development and a policy initiative. It is developed to respond to the unsustainable, conventional and linear “take, make, dispose” economic model. Circular economy is defined as “an industrial economy that is restorative by intention; aims to rely on renewable energy; minimises, tracks, and eliminates the use of toxic chemicals; and eradicates waste through careful design”.18 In the 2013 report “Towards the Circular Economy: Economic and business rationale for an accelerated transition” an overview of several schools of thought about circular economy was developed by the Ellen MacArthur Foundation.19 The “historical evolution” of the concept is visualized in Figure 5. For sure, this “evolution” is just illustrative. The predecessors of the circular economy were economists working in 17 Ellen MacArthur Foundation, 2017a. 18 Ellen MacArthur Foundation, 2013a, p.22. 19 Ellen MacArthur Foundation, 2013a, p. 26-27 16 the late 1800s and in the beginning and middle of the 19th century. The years assigned to the concepts and schools of thought illustrate the period of the “emergence”. Sometimes the most significant contribution was made much later after emergence. Crandle-to-crandle Industrial ecology Ecological economy Circular economy Regenerative design Spaceman economy Biomimicry 1960s 1970s 1980s 1990s Figure 5. Schools of thought contributed to the development of the Circular economy concept (Source: Authors’ compilation) For instance, Walter R. Stahel firstly used the term “cradle to cradle” (Hebel et al., 2014, p.11). However, the authors of the current concept of cradle to cradle are William McDonough and Michael Braungart (2002). Main contributors to the development of the conceptual predecessors of circular economy and other related schools of thought are listed in Table 1. There are plenty of scientific publications with an attempt to make a comprehensive overview of definitions of the circular economy concept. Kirchherr et al. (2017a) with an analysis of 114 definitions and Rizos et al. (2017), who reviewed not only the definitions, but also the circular economy processes and impacts, both can be mentioned as an example. Table 1. The main contributors to CE-related schools of thought (Source: Authors’ compilation) Concept / school Year Contribution of thought Performance 1986 Stahel, W.R. “Hidden Innovation, R&D in a Sustainable economy Society” Green Economy 1989 Pearce, D.W., Markandya, A., Barbier, E.B. “Blueprint for a Green Economy” Industrial ecology 1989 Frosch & Gallopoulos “Strategies for Manufacturing” 17 Concept / school Year Contribution of thought Regenerative 1994 Lyle, J.T. “Regenerative design for sustainable Design development” Biomimicry 1997 Benyus, J.M. “Biomimicry: Innovation Inspired by Nature” Bioeconomy 1998 Enriquez, J. “Genomics and the World's Economy” Cradle-to-cradle 2002 McDonough & Braungart “Cradle to Cradle: Rethinking the Way We Make Things” Blue economy 2010 Pauli, G. “10 years, 100 innovations, 100 million new jobs” Several up-to-date definitions of the concept, proposed by different authors and organisations in 2015-2019, are summarized in Table 2. Table 2. Definitions of the concept of Circular economy (Source: Authors’ compilation) Author(s) Definition Korhonen et al. (2018) “Circular economy is an economy constructed from societal production-consumption systems that maximizes the service produced from the linear nature-society-nature material and energy throughput ﬂow”. Kirchherr et al. (2017a) “A circular economy describes an economic system that is based on business models which replace the “end-of-life” concept with reducing, alternatively reusing, recycling and recovering materials in production/ distribution and consumption processes, thus operating at the micro level (products, companies, consumers), meso level (eco- industrial parks) and macro level (city, region, nation and beyond), with the aim to accomplish sustainable development, which implies creating environmental quality, economic prosperity and social equity, to the benefit of current and future generations”. Association of Cities and “The notion of circular economy aims at finding a new Regions for sustainable economical paradigm integrating environmental resource management preoccupations (particularly, dwindling of certain (2015, p.3) resources), and therefore makes way for “new business models”, i.e. a deep transformation of production and consumption models.” Deloitte Central Europe “The circular economy presents a development strategy that (2017, p. 27) allows economic growth while optimizing the use of resources, deeply transformed patterns of production and consumption chains, and designs for new industrial systems” 18 Author(s) Definition World Business Council “The circular economy is a new way of looking at the for Sustainable relationships between markets, customers and natural Development (2017a) resources. It leverages innovative new business models and disruptive technologies to transform the linear economic model” Ellen MacArthur “...an economy that provides multiple value creation Foundation & McKinsey mechanisms which are decoupled from the consumption of Center for Business and finite resources” Environment (2015, p. 23) European Investment Bank “...a new economic model that represents sustainable (2019, p. 3) progress towards efficient green growth, moving from a consumption and disposal-based linear model to extending the life and use of products and materials and minimising wastage” Rizos et al. (2017) state that the two basic approaches to the interpretation of the notion “circular economy” are: 1. resource-oriented definitions/ interpretations, emphasising the need to create closed loops of material flows and reduce the consumption of virgin resources; 2. interpretations that attempt to move beyond the notion of management of material resources and incorporate additional dimensions. In turn, the circular processes – recycling, remanufacturing etc. – are classified into three categories: 1) using less primary resources, 2) maintaining the highest value of materials and products and 3) changing utilisation patterns. One can select any definition that is the most clear for them. The most important is to be aware of the principles and activities within the circular economy. One of the simplest ways for understanding definitions of the concept of circular economy is provided by the quarterly journal Government Europe:20 The circular economy is a regenerative system in which resource input, waste, emission, and energy leakage are minimised by slowing, closing, and narrowing energy and material loops; this can be achieved through long-lasting design, maintenance, repair, reuse, re-manufacturing, refurbishing, recycling, and upcycling. 20 Government Europe, 2018. 19 2.2. CIRCULAR ECONOMY AND THE RELATED CONCEPTS “These concepts [circular economy, green economy, sharing economy, steady-state economy, bioeconomy] contribute to form companies’ sustainability visions and strategies by providing shared grounds for discussion on current issues with multiple stakeholder groups” (D’Amato et al., 2019) “To become more sustainable, companies need to go from traditional, linear business models based on “take, make and dispose” to circular business models based on reuse, resource efficiency, the sharing economy and closed loops” (Jørgensen & Pedersen, 2018) In these statements several notions and terms that are usually associated with (sustainable, sharing economy, green economy, closed loops) or matched against (linear business, “take, make, dispose”) the term “circular economy” can be found. The understanding of these related concepts can help to get a deeper awareness about the concept of circular economy itself. Circular economy and Sustainable development In 1987, the World Commission on Environment and Development defined sustainable development in the report Our Common Future, as following: “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. 21 Since the emergence of that definition, many actors still are struggling to find viable solutions to achieve sustainable development. However, it is a complicated process affected by various external factors. The world’s population is increasing, along with the average gross domestic product. The middle class is expanding and is predicted to increase with three billion people over the coming decade. Even though these external factors are favourable to economic growth, they are simultaneously imposing limits to it, as they are the key drivers of resource demand.22 This rising global affluence creates a demand that many non-renewable resources cannot keep up with. Sustainable development refers to approaches and methods that minimize our impact on the environment, promote development, based on social justice and equality. Three pillars of sustainability are economic, environmental and social sustainability. It is only achieved when there is balance or a trade-off between these three aspects. 21World Commission on Environment and Development, 1987, p.41. 22Towards the Circular Economy: Accelerating the scale-up across global supply chains. World Economic Forum, 2014. 20 The principles of sustainable development contain only a concept, but do not contain specific solutions or implementation tools for achieving sustainable development, which is a complex fundamental task. An important issue in the implementation of the concept of sustainable development, especially since it is often viewed as evolving, was the identification of its measurable indicators, which could reflect the economic, social and environmental aspects of the sustainable development of society and link them together. An additional issue was the creation of various methods and approaches for the implementation of the concept of sustainable development in life in various fields and industries. Therefore, at the United Nations Sustainable Development Summit in 2015, world leaders adopted the 2030 Agenda for Sustainable Development.23 The Agenda includes a set of 17 Sustainable Development Goals (SDGs) to be met by 2030 (Figure 6), which are accompanied by specific targets – 169 in total.24 All goals relate to the global challenges the planet is facing, including those related to environmental degradation and climate change, poverty, inequality, peace and justice. Figure 6. Sustainable development goals25 Dr. Patrick Schröder at the Institute of Development Studies (IDS) has identified the key targets amongst the Sustainable Development Goals (SDGs) that are crucial for a transition to a circular economy (Table 3). 23 United Nations, 2015. 24 United Nations. Sustainable Development Goals. 25 Sustainable Development Working Group, 2015. 21 Table 3. Key SDG targets crucial for circular economy (Source: The top 10 priority targets for the circular economy26) SDG targets Description TARGET 2-4 By 2030, ensure sustainable food production systems and implement resilient agricultural practices that increase productivity and production. TARGET 3-9 By 2030, substantially reduce the number of death and illnesses from hazardous chemicals and air, water and soil pollution and contamination TARGET 6-3 By 2030, improve water quality by reducing pollution, eliminating dumping and minimizing release of hazardous chemicals and materials, halving the proportion of untreated wastewater and substantially increasing recycling and safe reuse globally TARGET 7-3 By 2030, double the global rate of improvement in energy efficiency TARGET 8-4 Improve progressively, through 2030, global resource efficiency in consumption and production and endeavour to decouple economic growth from environmental degradation, in accordance with the 10- year framework of programmes on SCP, with developed countries taking the lead TARGET 9-2 Promote inclusive and sustainable industrialization and, by 2030, significantly raise industry’s share of employment and gross domestic product, in line with national circumstances, and double its share in least developed countries TARGET 11-6 By 2030, reduce the adverse per capita environmental impact of cities, including by paying special attention to air quality and municipal and other waste management TARGET 12-2 By 2030, achieve the sustainable management and efficient use of natural resource TARGET 12-5 By 2030, substantially reduce waste generation through prevention, reduction, recycling and reuse TARGET 14-1 By 2025, prevent and significantly reduce marine pollution of all kinds, in particular from land-based activities, including marine debris and nutrient pollution The researchers and public authorities recognize a strong interconnection between sustainable development and circular economy, both on the theoretical (conceptual) and the practical level. In the report of the Economic Research Institute for ASEAN and East Asia “Towards a Circular Economy: Corporate Management and Policy Pathways”, it is stated that 26 SB Insight, 2019, p. 10. 22 sustainable development requires a balanced and simultaneous consideration of economic, environmental, technological, financial, and social aspects of the country-, sector-, firm-level process, as well as interaction among different stakeholders. In that context, circular economy is seen as a new business model, expected to lead to a more sustainable and harmonious society (Anbumozhi & Kim, 2016). Shaharia (2018) in his paper “Circular Economy: The Beauty of Circularity in Value Chain” states that circular business models and sustainable business models are focusing on the same values – creating sustainable value, stakeholder management, and long-term perspective. The supporting activities in the circular value chain “are mostly the same as the linear value chain, but sustainable procurement and practicing sustainability in supporting activities are added” (Shaharia, 2018, p.588) “The link between circular economy and the Sustainable Development Goals is thus evident. A circular economy improves resource efficiency and can therefore increase economic growth in a long-term sustainable manner” (2019 report “The Nordic Market for Circular Economy”).27 The concept of sustainable development has a direct economic and technological substantiation, the essence of which can be described by the so-called “5R” principle of a closed-cycle economy:  Restriction of energy and material consumption  Replacement of non-renewable resources by renewables  Recovery of the necessary components from recycled waste  Recycling  Reuse of products Lehmann, Leeuw and Fehr, representing the World Resources Forum, state that a circular economy is “the basic requirement for achieving a sustainable economy and a future-compliant society” (Lehmann et al., 2014). In their brochure “Circular Economy Improving the Management of Natural Resources”, the authors also presented their vision of circular economy within the framework of other sustainability concepts (Figure 7). 27 SB Insight, 2019, p. 9. 23 Figure 7. CE within the framework of other sustainability concepts (Source: Lehmann et al., 2014) Circular economy versus Linear economy The Industrial Revolution created a linear model for a rapid and an efficient production of products — more often with built-in service life – without regard to environmental consequences. Historically, manufacturers often took environmentally unsustainable resources, manufactured goods, and disposed of the remaining materials in ways that were harmful to the environment. The linear economy is based on a linear process. Usually, the process is optimized to make it as efficient as possible, with high throughput and lower production costs based on the availability of various inputs at relatively low cost. The typical process is based on the “take – make – consume – dispose” model and consists of a series of steps: resource extraction, production, distribution, consumption and disposing of products at the end of their life cycle. A linear model of value creation “begins with extraction and concludes with end-of- life disposal. Resources are acquired, processed using energy and labour, and sold as goods – with the expectation that customers will discard those goods and buy more”.28 Circular economy is an alternative model that assumes an endless flow of raw materials, product life-cycle extension and incorporates the principle “reduce, re-use, recycle” instead of the principle “take, make, dispose”. “In a circular economy, products are designed for durability, upgradeability, reparability and reusability, with a view to reusing the materials from which they are made after they reach the end of their life”.29 28 McKinsey & Company, 2016. 29 European Commission, 2019a, p. 4. 24 Shaharia (2018) defines a circular value chain as “a process and activities by which organizations retain and regenerate values to an article from secondary raw materials through reverse logistics and propose regenerative value by practicing sustainability in supporting activities: human resources, procurement, technology, and firm infrastructure”. A simplified illustration of both a linear and a circular economy is presented in Figure 8. Figure 8. Simplified illustration of a linear and a circular economy30 A key difference between the linear economy and the circular economy is the fact that circular economy is eco-effective instead of eco-efficient. “The goal [of eco-effectiveness] is not to minimize the cradle-to- grave flow of materials, but to generate cyclical, cradle-to-cradle “metabolisms” that enable materials to maintain their status as resources and accumulate intelligence over time (upcycling)” (Braungart et al., 2007, p.1338) This creates a positive correlation between the economy and the ecology.31 Circular economy is a response to not only ecological problems. Along with the positive environmental impact, benefits from the transition to a circular economy include: - Resource benefits: improving resource security and decreasing import dependency; 30 Deloitte Sustainability, 2016. 31 SB Insight, 2019. 25 - Economic benefits: opportunities for economic growth and innovation; - Social benefits: sustainable consumer behaviour and job opportunities.32 Moreover, “the circular economy is compatible with the inherent interests of the corporations, as it is aligned with the competitive and the strategic frameworks and it is capable to enrich the contract between the consumers and the producers”. (Sariatli, 2017) The properly applied principles of circular economy can deliver companies “cost benefits today and some striking longer-term strategic opportunities as well as new profit pools in reverse cycle services”.33 “Transitioning to a circular economy does not only amount to adjustments aimed at reducing the negative impacts of the linear economy. Rather, it represents a systemic shift that builds long- term resilience, generates business and economic opportunities, and provides environmental and societal benefits”.34 Circular economy and Green economy The term “Green economy” was coined in 1989 in the “Blueprint for a Green Economy” report (Pearce et al., 1989). In 2008, the United Nations Environmental Programme (UNEP) launched a Green Economy Initiative (GEI). GEI’s aim was stated as “to demonstrate that investing in green sectors – such as energy efficient technologies, renewable energy, public transport, sustainable agriculture, environment friendly tourism, and sustainable management of natural resources including ecosystems and biodiversity”.35 European Environmental Agency defined green economy as “…results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities”.36 A comprehensive overview of the literature on green economy “A guidebook to the Green Economy” was provided by Allen and Clouth (2012). D’Amato with co-authors in their paper “Green, Circular, Bio economy: a comparative analysis of sustainability concepts” stated that “Green Economy acts as an ‘umbrella’ concept, including elements from Circular Economy and Bioeconomy concepts (e.g. eco-efficiency; renewables), as well as additional ideas, e.g. nature- based solutions” (D’Amato et al., 2017). According to the European Environmental Agency (2016b), the circular economy is a relevant part of the green economy (Figure 9), which deals also with the human 32 European Environment Agency, 2016a. 33 Ellen MacArthur Foundation, 2013a, p. 10. 34 Ellen MacArthur Foundation, 2017b. 35 Chief Executives Board Secretariat, 2016. 36 European Environmental Agency, 2016b. 26 welfare (i.e. lifestyles and consumption models for an extensive and inclusive well- being) and the ecosystems resilience (i.e. natural capital and ecosystem services preservation). Figure 9. Circular economy and Green economy (Source: European Environment Agency, 2016a, p. 31) Circular economy and Corporate Social Responsibility Corporate social responsibility (CSR) “refers to companies taking responsibility for their impact on society” (European Commission, 2017). Speaking about circular economy business models, the link with the concept of CSR becomes obvious. Researchers (Turoń & Czech, 2016; Esken et al., 2018) and business practitioners investigate circular economy practices and the economic impact of CE-based activities in line with the CSR strategy.37 “A holistic approach to circular economy is the one that merges the mission-driven approaches of CSR, social enterprise, and social entrepreneurship with the ecological potential of circular economy for social good” (Soufani et al., 2018). Based on Ordaz & Vargas-Hernández (2017), “Circular Economy model emerges as a system that seeks the manufacture of more resistant products or the collection of 37 Deloitte Sustainability Consulting Central Europe, 2017. 27 raw materials through recycling for its reutilization, which represents a way of sustainable development that maintains the Social Responsibility from companies”. To understand the close relationship between circular economy and CSR or vice versa, one can read any CSR report prepared by the organizations. The reports include sections, such as “waste management”, “greenhouse gas reduction”, “product energy efficiency”, “water stewardship” – all of which are the core activities of circular economy (Intel Corporation 2019; Starbucks Corporation, 2006). In some reports CSR activities are mentioned as instruments for moving towards circular economy goals: “I am pleased with our sustainability and corporate responsibility performance in 2017, particularly the progress we made in the areas of energy performance, climate action and circular economy” (President and CEO of Ericsson, Sustainability and Corporate Responsibility Report 2017).38 “Groupe PSA has long deployed an eco-design approach. It is actively involved in the circular economy through managing its products’ end-of-life cycles” (GROUPE PSA, Corporate Social Responsibility Report 2018).39 “XPO Logistics Europe supports the move towards a circular economy by reducing the amount of waste generated by our operations and by ensuring that as much waste as possible is sorted and recycled” (XPO Logistics Europe, Corporate Social Responsibility Report 2018).40 “We need to move away from linearity and embrace circularity. Through careful design and innovative business models, technical and biological materials can flow continuously within the economy, rather than be used once and discarded, safeguarding valuable stocks and decoupling growth from finite natural resources” (Chris Dedicoat, Executive Vice President of CISCO, Corporate Social Responsibility 2016 Report).41 CONTROL QUESTIONS AND QUESTIONS FOR INDIVIDUAL STUDIES 1. How do you understand the term “Circular economy” after reading this chapter? 2. Form your own list of key words associated with circular economy. 3. Select 2-3 CE-related concepts and explain the interrelation between them. 38 Ericsson, 2018, p. 4. 39 Groupe PSA, 2018, p. 17. 40 XPO Logistics Europe, 2019, p. 20. 41 CISCO, 2017, p. 18. 28 3. CIRCULAR ECONOMY ACTIVITIES 3.1. GLOBAL INITIATIVES TOWARDS CIRCULAR ECONOMY The United Nations Environment Programme (UN Environment) UN Environment is the leading global environmental authority that sets the global environmental agenda, promotes the coherent implementation of the environmental dimension of sustainable development within the United Nations system, and serves as an authoritative advocate for the global environment.42 United Nations Global Compact (UN Global Compact) UN Global Compact is the world’s largest corporate sustainability initiative. The strategy of the UN Global Compact is to drive business awareness and action in support of achieving the Sustainable Development Goals by 2030. UN Global Compact guides companies to do business responsibly, committing to and incorporating its 10 principles on human rights, labour, environment and anti- corruption into strategies and operations.43 The Ellen MacArthur Foundation It was launched by Ellen MacArthur in 2010 to accelerate the transition to a circular economy. Its work focuses on six areas:44 1. Learning. The Foundation provides insights and resources to support circular economy learning, and the systems thinking required to accelerate a transition. 2. Business. The Foundation works with its Global Partners to develop scalable circular business initiatives and to address challenges to implementing them. 3. Institutions, Governments and Cities. The Foundation works with governments and institutions with the aim of informing policymakers and supporting public-private co-creation mechanisms. 4. Insight and Analysis. The Foundation continues to widen its understanding by working with international experts, key thinkers and leading academics. 5. Systemic Initiatives. The Foundation is bringing together organisations from across value chains to tackle systemic stalemates which organisations cannot overcome in isolation. 6. Communications. The Foundation communicates CE ideas and knowledge through digital media and Circulate, an online information source dedicated to the issues of circular economy and related subjects. 42 United Nations Environment Programme. About UN Environment. 43 United Nations Global Compact 44 Ellen MacArthur Foundation, 2017a. 29 World Health Organization (WHO) WHO started its work in 1948 and now all the members of WHO represent 194 of the world’s countries.45 WHO bases its work on the Sustainable Development Goals (SDGs). The currently implemented strategical programme is the Programme of work 2019 – 2023.46 Its vision: “A world in which all people attain the highest possible standard of health and well-being”. WHO supports countries to implement the drinking-water quality guidelines.47 The organisation works closely with UNICEF on water, sanitation, and hygiene in health care facilities.48 UN-Water & UNESCO Members of UN-Water are UN (United Nations) agencies, programmes and other UN entities dealing with water-related issues, including sanitation and natural disasters. UN-Water provides coherent and reliable data and information on key water trends and management issues and coordinates the United Nations international observances on freshwater and sanitation.49 The flagship programme of UN-Water – UNESCO World Water Assessment Programme (UNESCO WWAP) – was founded in 2000. It coordinates the production of the UN World Water Development Report (WWDR), with an aim to report on the status of global freshwater resources and the progress achieved in reaching the Millennium Development Goals related to water. UNESCO WWAP seeks to equip water managers and key decision-makers with the information, data, tools and skills necessary to enable them to effectively participate in the development of policies.50 The Food and Agriculture Organization (FAO) FAO unites 194 member states. Its goal is to achieve food security for all and make sure that people have regular access to enough high-quality food to lead active and healthy lives. To meet demands and challenges in agricultural development, FAO has identified five key priorities:51 1. Help eliminate hunger, food insecurity and malnutrition. 2. Make agriculture, forestry and fisheries more productive and sustainable. 3. Reduce rural poverty. 4. Enable inclusive and efficient agricultural and food systems. 45 World Health Organization. Who we are. 46 World Health Organization, 2018. 47 World Health Organization, 2011. 48 World Health Organization, 2019. 49 UN-Water. What we do. 50 UNESCO. World Water Assessment Programme (UNESCO WWAP). 51 Food and Agriculture Organization. What we do. 30 5. Increase the resilience of livelihoods to threats and crises. World Meteorological Organization (WMO) WMO was established in 1950 and now is an organization with 193 member states and territories. WMO collects data to produce weather, climate and water-related forecasts and coordinates and organizes international research programmes to improve weather, climate, water and environmental observations, prediction, service delivery and scientific assessments of regional and global environmental conditions.52 World Bank Group World Bank Group is a partnership of institutions: The International Bank for Reconstruction and Development (IBRD), The International Development Association (IDA), The International Finance Corporation (IFC), The Multilateral Investment Guarantee Agency (MIGA) and The International Centre for Settlement of Investment Disputes (ISCID) working for sustainable solutions that reduce poverty and build shared prosperity in developing countries. World Bank operates in accordance with its environmental and social policies, which provide a framework for consultation with communities and for public disclosure. These policies require the borrowing governments to address certain environmental and social risks in order to receive World Bank support for investment projects.53 Platform for Accelerating the Circular Economy (PACE) PACE is a public-private collaboration platform and project accelerator. PACE aims to accelerate action towards the circular economy by driving projects, capturing & disseminating learnings and leveraging leadership for scale.54 3.2. EUROPEAN INITIATIVES In 2005, the European Commission proposed a Strategy on the Sustainable Use of Natural Resources 55,56 within the 6th Environmental Action programme (6 EAP). This was an initial stage for development current European strategies towards circular economy. In 2011, the Resource Efficiency Roadmap57 was developed to “illustrate what will be needed to put Europe on a path to resource efficient and sustainable growth”.58 52 World Meteorological Organization. What we do 53 World Bank. Environmental and Social Policies. 54 Platform for Accelarating the Circular Economy (PACE). Public Overview. 55 European Commission, 2019b. Sustainable Use of Natural Resources. 56 European Commission, 2003. 57 European Commission, 2011a. 58 European Commission, 2019c. The Roadmap to a Resource Efficient Europe. 31 The current EU policies on circular economy express the commitments of EU to United Nations’ 2030 Agenda for Sustainable Development 59 and Paris Agreement.60 In 2015, the European Commission presented a circular economy package – the key EU policy initiative on circular economy.61,62 It contains EC communication “Closing the Loop - An EU action plan for the Circular Economy”63, an action plan with concrete actions, measures and timetable, and legislative proposals on waste management. The EU action plan for the Circular Economy aims to support the transition to a circular economy in the EU. It contains a set of actions, such as:64 1. A European EU Strategy for Plastics in the Circular Economy. 2. Communication about how to deal with the interlinkages between chemical, product and waste legislation. 3. A monitoring Framework on the progress of the transition towards circularity, both on the EU level and on a national level. 4. A report on critical Raw materials. The guidance for EU’s environmental policy till year 2020 is the 7th Environment Action Programme.65 The Programme sets up a 2050 vision of 'living well within the limits of the planet'. Its key objectives are:  to protect, conserve and enhance the Union’s natural capital;  to turn the Union into a resource-efficient, green, and competitive low-carbon economy;  to safeguard the Union’s citizens from environment-related pressures and risks to health and wellbeing. Circular economy Action plan is complemented by a set of strategies, such as: - The Bioeconomy Strategy launched in 2012 and updated in 2018.66 - Eco-innovation Action Plan.67 - The EU Biodiversity Strategy to 2020.68 - The Plastics Strategy adopted in 2018.69 59 Transforming our world: the 2030 Agenda for Sustainable Development 60 United Nations Climate Change, 2015. 61 European Parliament, 2016. 62 European Commission, 2019d. Green growth and circular economy. 63 European Commission, 2015. 64 SB Insight, 2019. 65 European Commission, 2014a. 66 European Commission, 2019e. The Bioeconomy Strategy. 67 European Commission, 2011b. 68 European Commission, 2011c. 69 European Commission, 2018a. 32 - a modernised Common Agricultural Policy (CAP) proposed in 2018 for the next long-term EU budget 2021-2027. 70 A comprehensive overview of the EU programmes towards circular economy, as well as the recommendations for the EU institutions are provided in the discussion paper prepared within the European Policy Centre’s project “Digital Roadmap for Circular Economy” (Hedberg et al., 2019). The overview of CE activities in EU28 countries is provided within the 2019 report “Circular economy update: Overview of circular economy in Europe” prepared by the European Federation of Sustainable Business.71 The report “Circular economy strategies and roadmaps in Europe: Identifying synergies and the potential for cooperation and alliance building”, developed by the European Economic and Social Committee, provides a comprehensive list of national strategic documents on circular economy, elaborated in 14 European countries.72 CONTROL QUESTIONS AND QUESTIONS FOR INDIVIDUAL STUDIES 1. What are the main organizations promoting the transition to a circular economy? 2. Which organization are engaged into the circular economy activities in your country? 70 European Commission, 2018b. 71 Ecopreneur.eu, 2019. 72 European Economic and Social Committee, 2019, p.13. 33 4. PRINCIPLES AND BUILDING BLOCKS OF THE CIRCULAR ECONOMY 4.1. PRINCIPLES OF THE CIRCULAR ECONOMY Over the past few years, circular economy has significantly raised interest and continues to gain momentum. “Circular economy”, “circular principles” and related concepts are frequently mentioned in academic literature and the reports of various involved organisations. Some definitions were provided in the second chapter of this book. The definitions of “circular economy” varies widely depending on the problems to be solved, the audience or the lens through which the author looks at the world. For some organizations, circular economy means managing material resources and resources to close material cycles. For others, this means new business models and far-sighted organizational strategies, or innovative products and design strategies. Without a clear understanding of the circular economy, there is a huge missed opportunity to effectively link the topic with the existing framework. For example, it is difficult to answer the questions: What aspects of a circular economy are related to sustainable development goals? How to close the emissions gap and attain the Paris agreement reached at COP21? Which initiatives are better to use in various sectors for sustainable development? Which political initiatives must be developed in different countries of the world? Development of the environmental protection and sustainable development concept towards the circular economy have gone a long way in more than 60 years, starting almost from scratch, gradually developing to present day (Figure 10). Circular Actions economy Pollution Life cycle prevention, analysis Economy, Cleaner Complex production, approach to EMSs Laws, Limits, environmental End of pipe issues solutions Almost nothing 1960 1970 1980 1990 2000 2010 Figure 10. Development of the environmental protection and sustainable development concept towards the circular economy (Source: Authors’ compilation) 34 The concept of a circular economy has origins that are deeply rooted and cannot be directly connected to any single author or date (see Chapter 2). However, in accordance with international studies of the circular economy, two fundamental approaches can be identified:  resource-oriented, implying a closed flow of materials, energy and waste, which can be achieved through reuse at the product level (repair or restoration), at the component level (reuse in production) and at the material level (recycling);  economy-oriented, according to which the circular economy is an economic system based on the reuse of materials and the conservation of natural resources, focused on creating values for people and the economy in each part of the system. The notion Circular Economy gained traction in 2010 when the Ellen MacArthur Foundation was established. Combining the previously mentioned two approaches and the most cited one, is the definition given by the experts of the Ellen McArthur Foundation. According to this approach, “a circular economy is one that is restorative and regenerative by design and aims to keep products, components, and materials at their highest utility and value at all times, distinguishing between technical and biological cycles”.73 In 2014, the World Economic Forum in collaboration with the Ellen MacArthur Foundation, and McKinsey & Company created a report “Towards the Circular Economy: Accelerating the scale-up across global supply chains“, where the following five main principles of the circular economy have been identified:74  Design out waste: By designing out waste, both environmental and operational improvements can arise. The aim is to reduce waste by designing products for disassembly and refurbishment to fit within biological and technical material cycles.  Build resilience through diversity: A diverse system built on features such as modularity, versatility and adaptively makes the system less vulnerable to external shocks.  Rely on energy from renewables: As great amounts of energy are typically used during production processes, using renewable resources should be the ultimate aim for manufacturing systems.  Think in systems: The concept of the circular economy is inspired by living systems, where systems rather than components are optimized. The ability to understand how different parts of the system influence each other is therefore crucial.  Waste is food: Technological and biological nutrient-based products and materials should cycle through the economic system through different 73Ellen MacArthur Foundation, 2015a, p.2. 74Towards the Circular Economy: Accelerating the scale-up across global supply chains. World Economic Forum, 2014. 35 applications before they finally reintroduce their nutrients into the biosphere.75 “A circular economy refers to a model in which we keep resources in use as long as possible to extract the maximum value from them whilst in use, and then to recover and regenerate products and materials at the end of their service life”.76 To date, there are more than a dozen visualizations of the circular economy model, while all of them have a similar structure. However, the model of the circular economy based on the development of the Ellen MacArthur Foundation, which is presented in Figure 11, is the most widespread and comprehensive model today. Linear economy is presented as a vertical process in the middle of the figure, from resource extraction and production, to landfill. The figure also shows two cycles in a circular economy - biological substances on the left and technical substances on the right.  The technical cycle involves the management of finite resources. Usage replaces consumption. Technical materials are recovered and mostly restored in the technical cycle.  The biological cycle encompasses the flows of renewable materials. Consumption only occurs in the biological cycle. Renewable (biological) nutrients are mostly regenerated in the biological cycle.77 In this report, it is claimed that value is created in a closed loop system. Unlike biological materials, technical materials are not connected in series with other applications, but the functionality, integrity and value of the energy contained in them, is maintained by means of modernization, reuse, dismantling, repair and rehabilitation works. Three features of the circular economy are also highlighted:  enhanced control over the reserves of natural resources and the observance of a sustainable balance of renewable resources for preserving and maintaining of natural capital at an inexhaustible level;  optimization of consumption processes developing, using and distributing such materials, components and products that could be recycled and reused as much as possible;  identification and prevention of negative external effects of current production activities in order to increase the efficiency of economic and environmental systems.78 75 Towards the Circular Economy: Accelerating the scale-up across global supply chains. World Economic Forum, 2014. 76 Closing the loop: risk or reward? 77 Ellen MacArthur Foundation, 2015a, p.7. 78 Ellen MacArthur Foundation & McKinsey Center for Business and Environment, 2015. 36 Figure 11. Outline of a circular economy (Source: Ellen MacArthur Foundation, 2015a, p.6.) 37 The basis of the circular economy is formed by closed supply chains. They combine conventional direct supply chain processes with reverse logistics processes, which range from product recovery, remanufacturing, disassembly and reuse of individual parts. The ultimate goal is to preserve the value of products consumed and used by consumers, with the possibility of reducing the environmental impact of the entire supply chain. Value Creation is happening using four different principles, i.e. inner circle, circling longer, cascading, and pure input (Table 4). These principles offer ways to take advantage of the price difference between used and virgin materials. Table 4. Sources of value creation for the circular economy (Source: Authors’ compilation, based on Ellen MacArthur Foundation, 2015a) Inner Circle – Minimising the use of comparative materials, through re-use. The tighter the circle, the less it has to be changed to be returned to use (with higher savings). Circling Longer – Maximising the number of consecutive cycles of reuse, to avoid production of a new component. Cascading – Diversified re-use across the value chain, substituting previously used virgin materials with existing materials (including symbiosis). Pure inputs – Avoidance of contaminated materials to increase collection and re-use efficiency whilst maintaining quality. So, circular economy describes an economic system based on business models of the reuse, processing and extraction of materials in the production and consumption of goods, works, and services. The concept of a circular economy requires a rethinking of the value chain. Circular economy can benefit companies and municipalities. This may be due to increased efficiency in the use of resources, reduction in waste management needs, and reduction in environmental pollution. In addition, circular economy has the potential to create social and economic benefits, i.e. new jobs, give opportunities and 38 improved welfare in low-income households etc.79,80 (Ghisellini et al., 2016; Lazarevic & Valve, 2017). A key element of sustainable production is the materials used. Such materials have to come from sustainable sources and have to be reusable and recyclable. The energy used to produce and process materials have to be highly efficient and come from sustainable sources. Materials have to be produced with high energy efficiency and with minimal waste or residue. Materials have to be moved back and forth throughout the entire life cycle of the products. Another important element is the conversion of waste into value. Waste is designed out of the production and consumption cycle. It means that waste is kept to the very minimum or there is simply no waste at all. Material and industrial residues are used as a resource for something else, their value being preserved, and goods with an expired service life are disassembled and recycled. In addition to materials and waste, product design is also important. That is a design that allows you to use materials for a long time and maintains the high quality of materials after recycling. Products are designed to be modular, versatile and adaptive. In addition, the service life of the product is increased due to the maintenance, repair and upgrade schemes. During many years, also nowadays, the concept of thr 3Rs is very popular. It was developed based on the “waste hierarchy” and shows the particular sequence of priority of actions to be taken for reducing the amount generated waste, and for improving the general waste management programs, projects and processes. This concept of the 3Rs is as follows: Reduce, Reuse, Recycle.81 All three principles are not hard to implement. All that is needed is a small change in our daily lifestyles to reduce waste, so that less of it goes to landfill, reducing our carbon footprint. But, of course, the current understanding of the concept of 3Rs goes beyond just reducing, reusing and recycling, and takes on a much broader 'umbrella'. Usually it means to build the economy based on the life cycle approach. 1R – Reduce. The main idea is to reduce the amount of produced waste. It is possible by starting with the inspection of what materials, details and products are being used, and finishing with the examination of the purposes for their usage. It could be done using many different approaches, for example:  Limiting the number of purchases.  Purchasing durable goods with a longer warranty, which usually have a longer lifespan. Additionally, reducing the amount of waste at the landfill.  Avoiding buying products that are over-packaged and use too much plastic, foil or paper. 79 Ellen MacArthur Foundation, 2015a. 80 Wijkman & Skånberg, 2016. 81 Srinivas, 2015. 39  Using electronic means of communication rather than paper- based documents.  Reducing paper wastage by printing on both sides of the paper.  If one no longer wishes to receive messages, removing your contact data from mailing lists can decrease the delivered paper materials.  Avoid the usage of disposable tableware or other items.82 2R – Reuse. The main idea is to reuse something, any item as much as possible before replacing it. Things that somebody wants to throw away can be transformed into something useful. Learning to reuse items or re-purpose them, for another than their initial use, is essential in waste hierarchy. Again, many activities should be done to reuse as much as possible. Some examples of items that can be reused are:  Waste paper: it can be collected and sent to recycling companies or used for notes and sketches.  Newspaper: Old newspaper can be used to pack items in boxes for moving or storage. It can also be used as a decor element, for example, for wallpaper or framed pictures.  Old clothes: Unwanted clothes or shoes can be donated to specific individuals or charity institutions. Additionaly, they can be repurposed into new clothes, accesories or interior design elements.  Used wood: The main usage for used wood is fire; however several crafts can also be done with it.  Tyres: These can be sent to recycling stations or used to make a tyre-swing.  Old pots and jars: The main use of these can be storing items in the kitchen, garden etc.  Compostable materials: A compost bin can be built to use these for composting. The compost will return to the garden to help your plants grow better. For this purpose all biological materials, as well as tea bags and coffee grounds, can be used.83 3R – Recycle. Recycling (and composting) is done for ensuring that items or their components are put to some new purpose as much as possible. To recycle something means that it will be retransformed into raw materials that can be converted into a new item. Instead of throwing items in landfills of certain types like, glass, paper and tin cans, they should be recycled, thus transforming them into something useful and reusable. There are very few materials on Earth that cannot be recycled. One of the issues facing communities that want to become more involved with the recycling effort is that, while the relying collection and sorting process may be affordable to 82 E-CSR, 2019. 83 ibid. 40 implement, there still has to be a facility to receive and transform the discarded waste into raw materials. More progress is being made towards uniting recycling plants with industries, which can process the waste material, through agreements and incentive credits. To put efforts in recycling, several actions can be taken:  Carefully selecting products that can be recycled i.e. that are made from recycled materials.  Buying products that have been made from recycled materials.  Buying non-toxic products if it is possible. Purchase non-hazardous materials whenever possible, as they may be difficult to recycle.  Inventing new ways to recycle different items, and etc.84 All developed countries have used a wide variety of initiatives and schemes, and there are companies that use or benefit from all or one of the 3R initiatives. Additionaly to the three basic Rs, sometimes the fourth R of “rethink” or “recover”, is added. In the case of ‘rethink’ it should be put in first place, meaning that first and foremost the environmental impact of our actions should be considered. Conversely, if ‘recover’ is used, it will be treated as the last R, because it refers to the practice of using waste products again. For example, decomposing garbage produces methane gas (one of the greenhouse gases), which some landfill sites recover and burn for energy, rather than letting it dissipate. In this case, the concept of 4Rs (reduce, recycle, recover, and reuse) is usually discussed. However, the concept of the 3Rs developed further, evolving into the 5Rs concept: Refuse, Reduce, Reuse, Recycle and Recover (Matevosyan, 2014; Tan et al., 2016), then the 6Rs: Reinvent/ Rethink, Refuse, Reduce, Reuse/ Repair, Recycle, Replace/ Rebuy (Avalero, 2013; Jawahir & Bradley, 2016), and the 7Rs: Refuse, Reduce, Reuse, Recycle, Recover, Repair and Re-gift (Van Ree, 2016; Golden Plains Shire, 2016). 8Rs also offers an expanded version of the 3Rs. The 8R adds a philosophical question on consumer behaviour, which sounds like “do I need it in the first place?” 8R adds the process of re-thinking the purchase of goods by consumers (Lyngaas, 2017). The last of the known concepts is the 9R model. The 9R model shows the hierarchical levels between the linear and circular economy. The highest level describes the circular economy and the cell ‘refuse’. It means, that the products become not or no longer needed or useful, or replaced by a completely different product. The lowest level describes the linear economy and the cell ‘recovery’. On this level waste is burned and this process produces energy and heat for further use (Figure 12). 84 E-CSR, 2019. 41 Figure 12. The 9R model for circular economy (Source: Lankester, 2018) The 9R model tries to describe the way from linear to the circular economy. The different step-by-step R strategies, presented in the middle part of the model, show the best activities to move from a linear to a circular economy. 4.2. CIRCULAR ECONOMY BUILDING BLOCKS Over the last two decades, increased attention to the concept of business model has been observed, especially in entrepreneurial, business strategy and management scholars. Business models are widely acknowledged as “a system-level, holistic approach towards explaining how firms do business”. Accordingly, a business model has been widely considered as a new unit of analysis of the company, which is centred on the focal firm and its activities, but with wider boundaries than those of the firm (e.g. relationships with its partners and suppliers) (Zott et al., 2011). A business model could be defined by three main elements (Figure 13). 42 Value proposition Value creation & delivery Value capture What value is provided How is value provided? How does the company and to whom? make profit and capture other forms of value? Customer Customer Key partners Cost structure segments relationships Product/ service offer and Channels Key resources value proposition Key activities Revenue streams Figure 13. A conceptual business model framework (Source: adapted from Richardson (2008)) In today’s increasingly globalized and competitive market, business model innovation has become one of the most important means of staying competitive in the market. The sustainability of any business model remains unclear, as the constantly changing market environment (new technologies, competitors, regulations, customer need changes, etc.) can quickly make existing business models obsolete or less profitable. At a conceptual level, adopting circularity in business seems to be an intuitive business case: closed loop supply chains enable the company to reduce its dependence on increasingly scarce and costly natural resources, and to turn waste into additional sources of revenue and value. But the practical implementation of circularity is not so easy. The main reason arises from the fact that most of the companies are simply not built to capitalize on the opportunities of a circular economy. Their strategies, structures and operations are deeply rooted in the linear approach to growth. Moreover, many traditional business models are still viable today only because of mispriced resources and other market distortions which make them more competitive than they would otherwise be (Clinton & Whisnant, 2014). Over the last years, as the concept of circular economy has been receiving more interest from businesses, the topic of a circular business model has been increasingly discussed in scholars and white papers through different lenses (i.e. typologies, archetypes, business model innovation framework). Nußholz (2017) describes a circular business model as “how a company creates, captures, and delivers value with the value creation logic designed to improve resource efficiency through contributing to extending useful life of products and parts (e.g. through long-life design, repair and remanufacturing) and closing material loops”. Nußholz puts the emphasis on the interconnection between the business value creation logic and the two types of resource efficiency strategies: on the one hand, downstream value chain activities aim to preserve the embedded value of products and to maximize their use (i.e. extension of the useful life) and on the other hand, 43 upstream value chain activities substitute primary material input with secondary materials (i.e. closing materials loops). Mentik (2014) describes a circular business model as “the rationale of how an organization creates, delivers, and captures value with and within closed material loops”. Bocken et al. (2016) think that circular business models enable “economically viable ways to continually reuse products and materials, using renewable resources where possible”. Despite the growing amount of literature around the concept, there is neither unique definition nor understanding of the business model, but rather various perspectives. Through an extensive review of business model literature, Wirtz (2011) identifies three main approaches: technological, strategic and organization-theoretical. All definitions emphasize the importance of addressing business models having circularity in mind. While scholars agree on established business model concepts (“the value creation logic” and the business rationale on “how an organization creates, delivers and captures value”), they offer various perspectives on what resource efficiency strategies entail. As a developer of the idea of circular economy, the Ellen MacArthur Foundation85,86 published a report identifying the following four essential building blocks of a circular economy: 1. Circular economy design. 2. New business models. 3. Reverse cycles. 4. Enablers and favourable system conditions. Block 1. Circular economy design To facilitate product reuse, recycling and cascading, companies need to build core competencies in circular design. The design of circular products plays a key role for extending the product life-span and closing material loops, as new design strategies are thought to address durability, maintenance and repair ability, as well as upgradability or compatibility. Circular product (and process) design requires sets of information, often new working methods and advanced skills. For using circular designs in an economically successful way, it is necessary to pay attention and operate in the following areas: material selection, standardised components, design for easy end-of-life sorting and recycling, i.e. easier separation or reusage of products and materials, and design-for-manufacturing, taking into account possible useful applications of by-products and waste. 85 Ellen MacArthur Foundation, 2013b 86 Ellen MacArthur Foundation, 2017c 44 Block 2. New business models The shift to a circular economy requires innovative business models that either replace existing ones or seize new opportunities. Here the most important role belongs to the companies. Companies having significant market share and possibilities to create and develop innovations could play a major role in driving circular economy. Business models of circular economy are based on not only manufacturing, but also the usage of new economy approaches, such as redistribution, maintenance and sharing. Remanufacturing predicts the maintenance and refurbishment of product components and used parts with a view to sell them again. Redistribution means resell and buy-back business activities. Maintenance is mostly oriented on performance rather than products. In this case, ownership of the products remains with the service provider. In contrast, sharing provides access to the item, product or service and possibility to use it, but does not provide ownership. However, new business models could be created not only on the production side, but also on the consumer side, as new purchasing models. Usually the following three types of models are used: access- or usage- based, performance-based and result- based models. Access- or usage-based purchasing models are focused on the purchase of goods and products for a specified period of access and/ or use. Conversely, performance-based models purchase certain services or performance that are not product-specific. In comparison, result-based models focus on a defined service result. If business models and initiatives are profitable, other market players will also use them, which will allow expanding these models more widely. Block 3. Reverse cycles To introduce reverse cycles, cascades and the final return of materials back into the industrial production system, or to soil, it is necessary to create and learn new and additional skills. These skills are connected to the delivery chain logistics, sorting, warehousing, risk management, power generation, and even molecular biology and polymer chemistry. It is necessary to create new, better-quality collection and treatment systems, and also an effective segmentation of end-of-li

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