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The circular economy

A disruptive model

The circular economy aims to produce goods and services while limiting the consumption and waste of raw materials, water and energy sources. In short, a brand new economic model. Explanation by our guest, Climate Economist Christian de Perthuis.

How would you define the circular economy?

The idea of a circular economy was popularized in the early 2000s in the United States. The circular economy is addressed to public officials in charge of sustainable and territorial development, companies looking for economical, social and environmental performance, and society as a whole.The concept was first associated with recycling and conserving raw materials, but that is a fairly simplistic vision.

More fundamentally, the circular economy model is highly disruptive because it is founded on major natural cycles, such as climate, water and biodiversity. The idea is not only to save raw materials but to reconcile production and consumption methods with these long-range natural cycles. So it is a significant change in perspective. Instead of viewing the environment as a resource, or available finite inventory, we imagine it as a set of regulating functions that are necessary to preserve and reproduce resources.

The circular economy is a disruptive model founded on major natural cycles, such as climate, water and biodiversity

How does the circular economy contribute to the energy transition?

When we replace a fossil fuel, such as oil, with renewable energy, such as biogas, we step out of the linear scenario of "fossil fuel extraction > combustion > CO2 emissions" and we embark on a new cycle that entails recycling or reusing resources in order to reduce emissions in the atmosphere. The same goes for wind and solar power: these renewable energies are perfectly aligned with the circular economy because they are based on natural sunlight and wind cycles.

Another example is using hydrogen as a new source of clean energy. Stored hydrogen can be converted into electricity and injected into the power grid or be used to power the fuel cells of a vehicle. Thus the energy transition, backed by the growing use of renewable energy, is generally within the scope of the circular economy.

What are the economic underpinnings of this system?

The fundamental reason why our natural resources are being destroyed is that they can be used free of charge. An example: households usually have no economic incentive to reduce their waste. In reality, the costs of environmental pollution and waste reprocessing are barely built into the price of goods and services. The generalization of the circular economy implies changing the pricing system, in order to integrate environmental damage. We are not trying to assign a price to nature, but rather to measure the environmental costs of our operating methods so we can pass them on to their perpetrators.

What are best practices in the industry?

It is not easy to provide a comprehensive overview because the context varies greatly from one sector to the next. The model was first introduced in industries that work with basic intermediate goods, such as glass and paper, where the economic incentives are significant since the cost of materials and energy heavily impact the total cost of production. In the glass industry, using recycled glass achieves energy savings of around 40%. Paper mills have been recycling for a long time and began thinking early on about the source of paper pulp and its consequences on deforestation.

There are also more and more small businesses and start-ups that have cast their lot with the circular economy from the beginning - out of personal conviction or strategy.

What are the potential drivers of the circular economy?

Implementing environmental pricing schemes on a large scale is the first step toward changes, but there are many others. The rise of the circular economy is closely linked to that of the functional economy, based on use rather than ownership. Car-sharing, for example, was massively adopted and proves to be a great way to reduce the waste resulting from the underuse of personal cars. For businesses, security of supply is another accelerator. The circularity principle helps ensuring consistency and quality when sourcing raw materials and intermediate goods. Of course, technological or organizational innovation is another key driver of the circular economy. A greater social awareness is at stake: our willingness to accept environmental abuses in our modes of production and consumption is changing.

Biography

Christian de Perthuis is an Economist and Professor at Université Paris-Dauphine. He is also the Founder of the Climate Economic Chair. He specializes in the economics of climate change and ecological transition, and has devoted much of his research to "green" taxes. He has chaired the French Government’s Committee for Environmental Taxes, an expertise and advisory body.

Article published on February 05, 2018