Circular economy is the optimistic degrowth strategy that works for all
Without discussing growth imperatives, resource reduction is an illusion
The ever-increasing demand for raw materials is depleting the earth. The primary reason for this increase is economic activity. Even with very optimistic assumptions regarding policy and technological developments, the Global Resources Outlook shows that it's impossible to limit resource demand to a sustainable level if the economy continues to grow. For a sustainable future, including a decrease in resource demand, we must think about achieving this without relying on ever-increasing economic activity. Since economies rely on stable ecosystems as their foundation, we can opt for an economy within planetary boundaries with a corresponding sustainable resource demand. Living well with lower resource demand can be achieved by implementing economic circular principles.
The exponential increase in resource demand
Between 2016 and 2021, the global economy consumed nearly as many resources as it did throughout the twentieth century. According to the International Resource Panel, resource demand in 2060 will be about 60% higher than in 2020, according to our current development path. Minerals and (rare) metals will undoubtedly be increasingly needed, among other things, to enable the energy transition (World Bank, 2017). These staggering figures can be understood when compared to real economic growth. The material footprint, the total amount of resources extracted for consumption, grows globally almost in tandem with real GDP. At the regional level (especially in more affluent Western countries), there is some decoupling (i.e., economic growth that rises faster than the increase in resource use) through technology (see figure). Still, it's not happening fast enough, not even for those countries and globally; we are far off.
Sustainable level of resource demand
Resource extraction is a demand for natural resources. In itself, there's nothing wrong with this if extraction is limited to what is sustainable in the long term. That's the basic idea behind the hyped circular economy in recent years. Herman Daly described the concept of a circular economy before it was widely recognized in research, business, or policy.1 A distinction must be made between renewable resources and non-renewable resources. The principle is that using non-renewable resources must be compensated for by developing renewable alternatives. Moreover, we should only use renewable resources at a pace they can naturally replenish themselves. This means that in a sustainable economy, we try to use everything we have as efficiently as possible, use as few new resources as possible, or produce as little waste as possible.2 This stands in contrast to the pursuit of economic growth measured in gross domestic product (GDP), which leads to increased use and waste of resources. After all, GDP measures the 'throughput' in the economy. But it goes even further. Even if an economy doesn't grow, we still need new resources. Everything we use eventually becomes less usable, a natural process (according to the second law of thermodynamics). In theory, it's not that complicated.
It's measurable, too. The ecological footprint estimates the ratio between the use of renewable resources and the actual renewal capacity. At the global level, we currently use 1.71 times more resources than the Earth can regenerate in a year (Global Footprint Network, 2024). This implies that sustainable resource consumption is about 40% lower than our material consumption in 2020.
Things are going very poorly regarding the infinite use of non-renewable resources. Circularity is decreasing worldwide, with the share of recycled resources at 7.2% in 2023. Even more worrying, since the measurement began about six years ago, this level of circularity has only decreased.
‘Decoupling’ resource demand
The recently published Global Resources Outlook shows that the global economy can become more efficient. The Global Resources Outlook provides valuable insights into the resource consumption of economies worldwide and is, therefore, a precious resource in the quest for a sustainable economy. The 60% growth in resource demand between 2020 and 2060 they predict under 'business as usual' doesn't have to become reality. By making bottom-up assumptions about, among other things, using resources and products longer, more frequent reuse, linking models for resource demand to a macroeconomic model with energy as a production factor, and limiting greenhouse gas emissions, they conclude that the economy can continue to grow without this drastic increase in resource demand. They assume common assumptions about population and economic activity but think many of the technically possible material-use improvements are implemented. These innovations are achieved by introducing policy measures, including a resource tax, a global CO2 price, and reduced food waste. They also assume, for example, that people will live in smaller homes and follow a more sustainable diet.
As the authors also point out, a well-coordinated policy and a massive economic transformation are needed to make all this possible. For example, demand increases when something becomes cheaper or more efficient, and policy must limit rebound effects. The authors also state that funding streams must be redirected to enable this sustainability transition, but they do not model how this shift is achieved.
There's nothing wrong with optimistic assumptions to show what is theoretically possible.
However, there is one big problem with this exercise. Even in the most optimistic scenario, resource demand does not decrease. The international resources panel estimates a 20% increase in resource demand between 2020 and 2060 in the Sustainability Transition scenario. This, while the Ecological Footprint, points towards a (rapid) reduction of 40% as a sustainable boundary in the current situation. In short, even with ambitious and effective policies, instead of a required reduction of 40% that is needed now, it only succeeds in limiting the growth of resource use from 60% to 20%, increasing the overshoot. Absolute decoupling of resource demand from economic activity cannot be achieved with today's knowledge, and technology seems to be the (very implicit) message.
An important reason for the failure to reduce resource use is that several underlying assumptions are not being discussed. The most important of these is the supposed utility of more economic activity. In the sustainability scenario, GDP (even per capita) continues to grow even in the wealthiest countries, making reducing resource use impossible.
The order of policy goals
This report presents us with a clear choice: we have to choose between a sustainable and a growing economy. They do not go together with the best knowledge available now. We must make policy based on today's technical possibilities in the coming years. As economists, this poses the question of which policy goal deserves priority.
A choice for 'growth' could be defensible in absolute terms—if nature and biodiversity were not assigned intrinsic value—if we could assume that additional economic activity makes all those natural resources redundant (for humans). This choice would be theoretically defensible if we knew that everyone could live safely and have enough to eat even without biodiversity and on a much warmer Earth. The heroic assumption economists make is substitutability: implicitly, the assumption is that all inputs from nature in the economy can be replaced by technology, capital, and labour.3
We do not even have the slightest certainty that this is possible. We increasingly understand that we need a stable ecosystem in various ways, even to make economic activity possible.4 In economic thinking, it's a gross mistake to see the economy as autonomous from the global ecosystem; it can only exist within and based on the global ecosystem.5
This calls for a revision of economic policy thinking. Classic economic models, such as a Cobb-Douglas growth framework, essentially see the ecosystem entirely separate from the economy. Climate research since the 1970s has made it clear that there are relevant relationships between the ecosystem and the economy. Integrated Assessment models, such as the DICE model for which William Nordhaus won the Nobel Prize in Economics, work according to this line of thought; they link multiple complex systems6 without incorporating boundaries and fully modelling interactions. The underlying assumption is that substitution between resources (ecosystems), capital, and labour is always possible. To truly embed the finding that an economy can only continue to exist within a stable ecosystem in economic policy, we must consider ecological boundaries as hard limits to economic activity.7
This means that the Global Resources Outlook, as a Sustainability Transition scenario, should start by limiting resource demand to 60% of the current level. From there, it should reason out how much economic activity is theoretically possible and how this activity can enable human well-being. This is opposed to the current approach, which assumes economic growth as an approach to (growing) human well-being and calculates how much resource demand can be limited.
Circularity as a development strategy
The well-known IPAT formula by Ehrlich (1972) still applies. The impact (I) is the pressure on ecosystems, P is population growth, A is affluence (wealth), and T is technology. We leave population growth out of consideration (not because it's not essential, but because most resource use occurs where the population is growing least rapidly). In the above approach, technological attempts have been made to limit the impact; there has indeed been an attempt to move from wealth maximization to sufficiency, but major transitions remain absent. The argument is that a certain degree of growth is necessary to create livelihood security for more people and provide social services and public amenities such as education. However, these adjustments fall within the current system. Our current system depends on growth, so the only option is to adjust the system: a transformation thoroughly. Here, we limit ourselves to the relationship with resources, circular economy, and growth, but this encompasses a much broader policy agenda; see, for example, Triodos Bank (2023) for some possible scenarios.
Circular principles bridge wealth, reduced resource use, and reduced growth. In the land of the circular economy, the R-ladder now plays a central role (PBL, 2023), with mainly the lower rungs of the ladder (where it concerns recycling or repair) being entered. Still, the higher rungs of the ladder, such as reuse, longer use, or not producing at all, are hardly being reached. The reason for this is that they don't fit companies' current profit maximisation logic.
Some argue that a circular economy doesn't necessarily have to go hand in hand with less economic growth.8 They assume that innovation and technology can lead even faster to dematerialization than in the scenario of the Global Resource Outlook. It is pleasant wishful thinking, but it remains just that without evidence. Others, like us, believe that introducing circular principles is the most social and welfare-consistent way of overcoming a growth addiction9 and point out the system changes that are needed, including switching to a different criterion of good economic organization: as long as efficient transactions rather than sustainable resource use remain paramount, that circular economy won't materialize.
A few examples to support this
Firstly, if products last longer, fewer products need to be produced. Companies are trying to do this, but it's inherently not a growth maximization strategy, except if the longer product yields more over its lifespan. However, this is hardly the case (after all, it has to compete with cheaper products). But suppose such a product is made and sold. This leads (ceteris paribus) to lower growth. It leads, and that's an essential condition, not to reduce welfare. The utility that can be derived during the longer lifespan remains the same. For example, a phone that lasts longer because parts are more accessible to replace and upgrade (like the Fairphone) leads to lower phone sales, but people can do the same. A television designed to be easier to repair will last longer. You'll only do this if the costs of repair (considerably) lower than buying a new one (ergo, less value-added creation or less economic growth). Furniture, where the fashion-sensitive aspects (such as decoration) are more accessible to change, will last longer. All this without reducing welfare. But less economic activity.
Secondly, less needs to be produced if products are shared more often. After all, the usage rate per unit of product increases. Usually, the technical lifespan (how much the product can handle) is far from reached when the economic lifespan is over. A sharing economy, even if it arises from the transfer of ownership (second-hand platforms), leads to economic contraction, again without compromising access to goods.
Thirdly, the highest rung of the R-ladder of the circular economy is not making a product (Refuse). It's, of course, not possible to determine to what extent products are not made where there would be a market for them, but they are unnecessary. Given the extensive range of non-strictly necessary items available in virtually every store and web shop, the suspicion seems justified that this is mainly a theoretical strategy. In theory, however, this would be the most potent means of limiting resource use: not making unnecessary things. In addition to focusing more on the proper use of all products and the necessary shifts in the economy from fossil or non-renewable to renewable (whether it's about energy or other resources) and from primary resource streams to secondary streams, it's crucial that, if people save money because they don't need new products, that money doesn't go to other things with a large ecological footprint. Combating rebound effects is essential for a circular economy. This, of course, requires a considerable policy agenda and behaviour change.
The circular economy degrowth machine
To make it practical, consider the economy as an assembly line (see below). It needs inputs (resources, capital, labour). Productivity, or innovation, lets them work together to create ‘stuff’. This role of the assembly line is called ‘the economy’. And how fast the products (and services) roll off the line is economic growth (see arrow). What is done with the things that are ‘in’ the economy (how they are used or not used) does not matter for economic growth (the pile below the assembly line). Sometimes, we need more products and services because there are more people or because they are basic needs. sometimes we don’t. Look into your wardrobe, for instance. Or in all those hidden places in your house where, you know, we have a lot of things we (almost) never use.
The first element of the circular economy is to use resources more efficiently, without changing anything in the model (1). This is eco-efficiency, and it is going on and working (to a certain limit, as said above). Then we have a strategy (2) that will deliver value but no growth: sharing, reusing, and better utilising what is already produced. Two strategies (repair (3) and refurbish (4)), put products a little back on the assembly line, but not completely. The contribution to economic growth is also lower than making a new product. Remanufacturing products (5) is almost (in terms of contribution to growth) as if it were a new product. Recycling (6) essentially equals resource-efficiency strategies in terms of what it does to add value (with the exception that producing secondary resources is now less profitable in general). What, of course, is missing is refuse (7): that would be the most effective strategy in terms of resource use, but it leads to less economic activity.
There is much more to say, and things are more nuanced. But this simple example helps to show why a circular economy would slow down the pace of the assembly line.
Circular = post-growth
An economy with lower resource demand but enough for everyone can be achieved by introducing the principles of a circular economy. Also, a truly circular, sustainable economy leads to economic contraction. The measure of whether we're on the right track is a reduction in resource use. Another measure is - especially in rich countries like the Netherlands - whether we manage to create an economy that can shrink so that everyone remains or becomes happy. That's not a disaster but a beckoning perspective for livelihood security.
Daly, H. E. (1996). Beyond growth: the economics of sustainable development. Beacon Press.
Daly, H. E. (1991). Steady-State Economics (2nd edition). Island Books
We say implicitly here because in most economic models, nature is still lacking in the production function.
See for instance:
Dasgupta, P. (2021). The economics of biodiversity: the Dasgupta review. Hm Treasury.
De Nederlandsche Bank & Planbureau voor de Leefomgeving. (2020). Indebted to Nature. Exploring biodiversity risks for the Dutch financial sector.
Yes, this analysis is entirely anthropocentric and economic. Taking other values into account (nature as a value in itself) and other than human interests (e.g., of different species) the economic argumentation makes less sense (if it even would hold).
Nordhaus, W. (2018). Evolution of modelling of the economics of global warming: changes in the DICE model, 1992–2017. Climatic change, 148(4), 623-640.
Daly, H. E. (1996). Beyond growth: the economics of sustainable development. Beacon Press.
Dasgupta, P. (2021). The economics of biodiversity: the Dasgupta review. Hm Treasury.
Schoenmaker, D., & Stegeman, H. (2023). Can the Market Economy Deal with Sustainability? Economist (Netherlands), 171(1), 25–49.
Schultz, F. & I. Pies (2024). The circular economy growth machine: A critical perspective on “post-growth” and “pro-growth” circularity approaches. Journal of Industrial Ecology. 28(1), 17-24
Kirchher, J. (2021). Circular economy and growth: A critical review of “post-growth” circularity and a plea for a circular economy that grows. Resources, Conservation and Recycling. 106033
Siderius, T., T. Zink (2022). Markets and the Future of the Circular Economy. Markets and the Future of the Circular Economy. Circular Economy and Sustainability.
Bauwens, T. (2021). Are the circular economy and economic growth compatible? A case for post-growth circularity. Resources, Conservation & Recycling. 175, 105852.
Daly, H. E. (1996). Beyond growth: the economics of sustainable development. Beacon Press.
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