More than recycling: impacts of a more circular economy

Earth Overshoot Day is the date by which “humanity’s demand for ecological resources and services in a given year exceeds what Earth can regenerate in that year”. In 2021, it fell on 29 July, meaning that 1.7 Earths would be needed to meet current global demand for resources. This is clearly unsustainable.

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There is growing recognition that a transition to a more circular economy is necessary to significantly reduce our consumption of energy, water, and other resources, reduce greenhouse gas emissions and minimise harmful environmental impacts while also growing the economy and lifting living standards.

“As well as reducing emissions, resource use, waste and harmful environmental impacts, transitioning to a more circular economy can have economic benefits.”

In a traditional linear economy, resources are extracted, manufactured into products, used, and then ultimately, discarded. But in a circular economy the impact on the environment is reduced by producing longer-lasting goods, repairing existing products and re-using materials from old products to reduce the need for extracting raw materials for new products.

This circular framework can apply to a wide range of production processes, from re-using non-renewable minerals such as lithium, nickel or cobalt from recycled batteries and electronics, to turning food scraps into compost.


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Source: Doughnut Economics, by Kate Raworth

Economic growth benefits

As well as reducing emissions, resource use, waste and harmful environmental impacts, the transition to a more circular economy can have economic benefits. A more circular economy can boost gross domestic product (GDP) and employment, reducing prices for businesses and consumers, maximising the value of resources and improving resource security.

In a World Economic Forum report, the Ellen MacArthur Foundation estimated global materials cost savings alone could exceed $US1 trillion per year.

In Australia, KPMG estimated a potential cumulative net economic benefit of $A210 billion by mid-century from eight initiatives to increase circularity across the food, transport and built environment sectors. PWC estimated a direct economic benefit of $A1.9 trillion over 20 years and a reduction in carbon dioxide (CO2) emissions of 165 megatonnes (Mt) per year by 2040 from a broader range of initiatives, including in industry.

Willing to pay

There are several barriers to the transition to a more circular economy, including:

  • institutional factors: reliance on traditional supply chains;
  • economic factors: high upfront investment costs; and
  • social factors: resistance to change.

Government policy, business decision-making and consumer behaviour will determine how quickly the transition can occur.

People are willing to pay for the circular economy. According to a global survey by Nielsen in 2018, 38 per cent of people were willing to pay more for products made with sustainable or environmentally friendly materials and almost half (46 per cent) said they would be willing to forgo a brand name in order to buy an environmentally friendly product.

A 2017 survey by Nielsen shows over 80 per cent of respondents agreed it is “extremely” or “very” important that companies implement programs to improve the environment.

A growing problem: waste in Australia

The Australian Bureau of Statistics (ABS) publishes experimental estimates on waste supply and use. While there are significant limitations, they showed Australia generated 75.8 million tonnes of solid waste in 2018-19, up 10 per cent in just two years.

While around 60 per cent of total solid waste generated in Australia is estimated to be recovered, this varies significantly by type of waste and does not capture whether waste is actually recycled. It only captures the intent. Plastics and textiles have very low recovery rates.

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Source: ABS, ANZ Research

In Australia, food waste makes up a quarter of total household solid waste. Globally, food waste accounts for an estimated 6 per cent of greenhouse gas emissions - around a quarter of all emissions from food production, according to Our World in Data.

This is likely higher as this estimate only captures losses in the supply chain and discarded food from retailers and consumers, not on-farm losses from production and harvest.

Less circular

The Circularity Gap Report estimates the global economy was only 8.6 per cent circular in 2020 and this had actually fallen from 9.1 per cent two years earlier. It proposes a roadmap of interventions that could reduce emissions by 39 per cent and resource extraction by 28 per cent.

The Ellen MacArthur Foundation outlines three principles for a transition to a circular economy:

  • Eliminate waste and pollution: reusable alternatives to single-use plastics, renewable energy.
  • Keep products and materials in use: design products for longevity and components for reuse and remanufacturing.
  • Regenerate natural systems: return organic matter to the soil, replace pesticides with natural pest management.

How do we get there?

In Australia, the National Waste Policy adopts some circular economy principles and aims to reduce total waste generated in Australia by 10 per cent per person by 2030 and increase the use of recycled content by governments and industry. Importantly, it also aims to make comprehensive, economy-wide and timely data publicly available to support better consumer, investment and policy decisions.

The CSIRO has developed a circular economy roadmap for plastics, glass, paper and tyres as the export of this waste is phased out. At the state level, in the past few years New South Wales, Victoria and South Australia have adopted circular economy policies.

Looking outside Australia, while China was one of the earliest to introduce circular economy policies, it has struggled to implement them. But having learnt from these experiences, the Chinese Government recently released its Development Plan for the Circular Economy under its 14th Five Year Plan which sets targets for reducing resource, energy and water intensity and increasing recycling and reuse of materials, including construction waste.

The European Green Deal aims for zero net emissions by 2050 and to decouple economic growth from resource use. To achieve this, the European Commission has adopted a Circular Economy Action Plan. Among other objectives, it aims to make sustainable products the norm in the EU and focus on resource-intensive sectors where the potential for circularity is high, including electronics and information, communications and technology (ICT), batteries and vehicles, packaging, plastics, textiles, construction and buildings, food, water and nutrients.

The City of Amsterdam is even more ambitious. Its Circular Strategy aims to halve the use of new raw materials by 2025 and achieve full circularity by 2050. Some examples of action points include increasing urban agriculture, improving collection and separation of discarded textiles, electronics, furniture and plastics for reuse, repair and upcycling, and ensuring new urban development and public space designs incorporate the use of sustainable materials.

While circular economy policies are generally focused at the country or city/region level, they also need to be aligned with trade policies. For example, the design and management of circular products need to take into account global supply chains while the value of secondary raw materials, waste and scrap for recovery and goods for reuse or remanufacture could be increased through international trade.

Catherine Birch and Adelaide Timbrell are Senior Economists at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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