The Circular Economy Model

Circular Economy Model

The chart above describes the closed loop systems of the Circular Economy. The goal of the Circular Economy is to keep products, components and materials at their highest utility and value, at all times[1]. In this model, there is endless flow of energy from flows such as the sun or wind. Waste is food and is used to rebuild and maintain natural and social capital. Prices act as messages that reflect the full cost[2]. At its full potential, this is a Zero Waste economic model;  however, transitioning from a global circular level of 6% [3] to a full restorative model, where the Biological Nutrients and Technical Nutrients are part of a full closed-loop system, is very difficult to occur. Despite the many challenges to reach a zero waste society, increasing regional circularity would induce great economic benefits.

The Inner Loops of the Technical Nutrients

Inner Loops of the Circular Economy modelFrom an Economic Development perspective, the inner loops of the Technical Nutrients hides a lot of value for a community or region.

The scholarly literature on Circular Economy shows that the problem with low circularity rates is that most products are being discarded in good working condition. For example, about 70% of phones are replaced in perfectly functioning condition[4]. The low circularity rates take place across all sectors. In the textile sector, about 70–80 % of the collected end-of-life apparel is suitable for second-hand clothing [5]. Another study shows that 77% of upholstered furniture and 60% of domestic appliances could theoretically be refurbished and reused [6]. As for white goods, a study on the Electrolux refurbishing facility in Sweden shows that 81.6% of the white goods that arrive at the facility are able to be refurbished, but the current rate of refurbishment is 3%-10%, the rate of reuse is 11%-23%, and refurbishing is 50% [7].

The good news is that it is possible to increase circularity rates. A Greenpeace survey shows that people from Eastern Asian countries have a higher tendency to repair their phones than people from Western cultures. Only 23% of Germans and 28% of US Americans have had their phones repaired, compared to 66% in China and 64% in South Korea[8]. The cases of Economic Development programs and policy that made regions increase their circularity rates will be presented on another article. Before being able to analyzing the effectiveness of those programs, it is important to understand the scholarly literature on the Inner Loops of the Technical Side of the Circular Economy model.

Product durability and product life extension are key to the concept of the Circular Economy model [9], but reuse, repair, and remanufacturing activities have received limited policy attention when compared to recycling [10]. These Inner Loops deserve primary attention because the scholarly articles show that Reusing, Repairing, and Remanufacturing offer the greatest value in energy, materials and economic savings.

1- Reuse

Reusing has the greatest economic and environmental benefits because the value of finished products is many times greater than the raw materials or components in them due to the creation of value during the production process.  The value created by the costs of labour, energy and capital goods during production naturally disappears when products are recycled instead of reused [11]. Recycling a complex product such as cars results in a loss of up to 95 percent of the value-added content[12]

In the example of a smartphone, a study shows that reuse provides a value of 290 British pounds (about half of the original product value), whereas the recycling value is only 72 pence [13]. If we consider that most smartphones are imported by multinational corporations that manufacture throughout the world, expanding the Ontario market for used smartphones can have a significant impact on both consumer saving and local job creation.  According to a study by Deloitte Global, the market for second-hand smartphones has reached $17 billion for about 120 million units being sold or traded by consumers. This market is expected to grow to $30bn by 2020 [14].

In terms of environmental impact, reusing a product entails lower life-cycle costs and energy requirements than recycling. Although recycling reduces costs by 10% and energy use by 50%, reuse reduces costs by nearly 40% and energy use by nearly 80% [15]. According to recent estimates, one additional year of usage can reduce the overall carbon footprint of a smartphone by 31% [16].

2- Repair

Repair is the second best option for extending the life products in terms of economic and environmental benefits.  A study on the effects of compressor repair and remanufacturing in Australia finds that the estimated cost of repaired compressors is 73% less than that of a remanufactured compressor and 82.4% less than purchasing a new compressor [17]. The study explains that repaired compressors are cheaper than both remanufactured and new compressors, and conserve non-renewable mineral resources.

It is important to note that maintenance of repair of electronic and machine goods often requires remanufacturing, as parts need to be replaced. For example, valve plates are re-manufactured in 80% of the cases[18]. Thus, the reliance on re-manufacturing raises many questions on the effectiveness of repairing, as the frequency of repairs, parts repaired, reliance on new parts, and transportation are important variables that affect the end impact on circularity [19].

In practice, maintenance and repair closely related to remanufacturing [20]. Repairing can potentially reduce the GHG emissions associated with a remanufactured or new compressor in the short-term, but re-manufacturing may offer greater carbon-saving benefits than repairing in the long-term[21]. In order to understand the optimal level for repairing and remanufacturing, the Life-Cycle approach needs to be taken into consideration. For example, lightweight materials are often used in different transportation equipment to save energy cost during the use phase, but may result in higher environmental and economic costs if the product needs to be replaced longer. This is also the case for iron cast housing in the conventional alternator, which needs to be replaced in 15% of the cores, while a lightweight aluminum housing needs to be replaced in 40% of the cores[22].

From an Economic Development perspective, the Life-Cycle approach can better support policies such as Extended User Responsibility to improve design of products by putting the cost of waste and repair on the hand of the producers. The Life-Cycle approach can also assist procurement programs that create demand for more durable goods.

3- Remanufacturing

Despite the dependency of repair on part remanufacturing to increase product durability, existing studies show that remanufacturing saves up to 90% of materials compared with new product manufacturing, and that the energy required for original production versus re-manufacturing can reach ratios of six to one[23].

Remanufacturing is already a well established industry. A 2011 review by the US International Trade Commission shows that the production of re-manufactured products totaled US$ 43 billion and supports 180,000 full-time jobs[24]. In terms of employment and economic impact, remanufacturing is as important as household consumer durable goods, steel mill products, computers and peripherals, and pharmaceuticals [25]. There are over 7000 of re-manufacturing firms in the United States and Canada. They are active in at least 125 different product areas and they are active in every state and province[26].

Given the need to decouple growth and mitigate commodity price fluctuations, remanufacturing should be an integral part of a region’s economic goals because it is less sensitive to recessions than new product manufacturing [27]. In an economic downturn, the demand for new products will drop, while demand for remanufactured products will increase. This effect has been observed in the US between 2008 and 2011, when the re-manufacturing industry grew by 15%, in the face of a downturn in the rest of the manufacturing industry [28]. The reason for this effect is likely because, from a consumer stand-point, the cost of re-manufactured products represent just 60-70% of the original price compared to a new product [29]. From a business standpoint, the cost of remanufactured products are estimated to represent 35-60% of the original cost of production[30].

4- Recycling

The main challenges of increasing circularity are fashionable obsolesce, technology advancement, and the stigma of re-manufactured goods [31]. The recycling industry will continue to play a significant role as a complete avoidance of waste will remain impossible [32]. However, it offers the least impact in overall sustainability. What the literature review on Reuse, Repair, and Remanufacturing says is that recycling may actually be supporting the linear economy if the activity does not lower the rate of product replacement [33]

What About the Biological Nutrients Loops?

The Biotechnical Nutrients side of the Circular Economy model, also known as the Bio-economy, is a $7+ trillion global market opportunity.  Regions such as Ontario that enjoy internationally renowned food, chemistry, ICT, and clean-tech industries can significantly improve their supply chains, health, and overall economic resiliency if they expand on this opportunity.

As is the case with recycling, it is important to understand that the Bio-economy cannot make an impact on regional circularity if the activity is not integrated in a strategy which primary objective is to increase the rates of Reuse, Repair, and Refurbishing products.

What the Circular Economy Model shows is that turning waste into new materials or energy does not always translate to a net reduction of energy and waste. Done wrong, the Bioeconomy can actually make the Linear Economy shift into a faster and more destructive gear. Done properly, the Bioeconomy represents significant opportunities for saving costs, driving innovation, and decoupling growth.


[1] Webster, Ken. The Circular Economy: A Wealth of Flows. Ellen MacArthur Foundation. January 2017. UK.

[2]  Ibid

[3] Haas, Willi;  Heinz, Markus, Krausmann, Fridolin; Wiedenhofer, Dominik. How Circular is The Global Economy?  Journal of Industrial Ecology. 2015

[4] Wieser, Herald.  Exploring The Inner Loops of the Circular Economy: Replacement, Repair, and Reuse of Mobile Phones in Austria. Journal of Cleaner Production. Volume 172,  20 January 2018.

[5] Bartl, Andrea. Moving From Recycling to Waste Prevention: A Review of Barriers and Enables. Journal of Cleaner Production. 2014

[6] Cooper, Tim. Slower Consumption. Journal of Industrial Ecology. 2008

[7] Biswas, WAdihuk; Rosenthal, Chloe; Fatimah, Yun.  Application of 6R Principles in Sustainable Supply Chain Design of Western Australian White Goods. Eslevier. 2016.

[8] Greenpeace. Greenpeace Global Mobile Survey 2016.

[9] Cooper, Tim. Slower Consumption. Journal of Industrial Ecology. 2008

[10] European Commission. Scoping Study to Identify Potential Circular Economy Actions, Priority Sectors, Material Flows and Value Chains. 2014.

[11] Circle Economy. The Potential for High-Value Reuse in a Circular Economy. 2015.

[12] Giutini, Ron. Remanufacturing: The Next Great Opportunity for Boosting US Productivity. Business Horizons. 2003, vol. 46, issue 6, 41-48.

[13] Circle Economy. The Potential for High-Value Reuse in a Circular Economy. 2015

[14] Digital Europe. The Contribution of The Digital Industry to Repair, Remanufacturing and Refurbishment in a Circular Economy. 2017

[15] Circle Economy. The Potential for High-Value Reuse in a Circular Economy. 2015

[16] Wieser, Herald.  Exploring The Inner Loops of the Circular Economy: Replacement, Repair, and Reuse of Mobile Phones in Austria. Journal of Cleaner Production. Volume 172,  20 January 2018.

[17] Biswas, Wahidul; Duong, Victor; Frey, P; Islam, Mohammad Nazrul. A Comparison of Repaired, Remanufactured and New Compressors Used in Western Australian Small- and Medium-sized Enterprises in Terms of Global Warming. Curtin Research Publications. 2013.

[18] Ibid

[19] Ibid

[20] Ferrer, Gerardo; Whybark,  Clay. From Garbage to Goods: Successful Remanufacturing Systems and Skills. Business Horizons.  Nov. 2000, p. 55. Academic OneFile, Accessed 12 July 2018.

[21] Biswas, Wahidul; Duong, Victor; Frey, P; Islam, Mohammad Nazrul. A Comparison of Repaired, Remanufactured and New Compressors Used in Western Australian Small- and Medium-sized Enterprises in Terms of Global Warming. Curtin Research Publications. 2013.

[22]  Schau, Erwin M; Traverso, Marzia; Finkbeiner, Matthias. Life Cycle Approach to Sustainability Assessment: A Case Study of Remanufactured Alternators. Journal of Remanufacturing. 2012.

[23] Matsumoto,Mitsutaka; Matsumoto, Mitsutaka; Yang,Shanshan; Martinsen, Kristian; Kainuma, Yasutaka. Trends and Research Challenges in Remanufacturing. International Journal of Precision Engineering and Manufacturing – Green Technology; Heidelberg.  Vol. 3, Iss. 1,  (Jan 2016): 129-142. DOI:10.1007/s40684-016-0016-4

[24] Vlaanderen, Tessa. Accelerating Growth of US Remanufacturing Industry. Circular Futures. 2018

[25] Giutini, Ron. Remanufacturing: The Next Great Opportunity for Boosting US Productivity. Business Horizons. 2003, vol. 46, issue 6, 41-48. 

[26] Lund, Robert T. The Database of Remanufacturers. Boston University. 2012

[27] Vlaanderen, Tessa. Accelerating Growth of US Remanufacturing Industry. Circular Futures. 2018

[28] Ibid.

[29] Giutini, Ron. Remanufacturing: The Next Great Opportunity for Boosting US Productivity. Business Horizons. 2003, vol. 46, issue 6, 41-48. 

[30] Ibid.

[31] Ferrer, Geraldo. The Economics of Personal Computer Remanufacturing.

[32] Bartl, Andrea. Moving From Recycling to Waste Prevention: A Review of Barriers and Enables. Journal of Cleaner Production. 2014

[33] Stal, Herman; Corvellec, Herve. A Decoupling Perspective on Circular Business Model Implementation: Illustrations from Swedish Apparel. Journal of Cleaner Production. Volume 171. 10 January 2018, Pages 630-643

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