Circular Economy Rebound

Abstract

Summary The so‐called circular economy—the concept of closing material loops to preserve products, parts, and materials in the industrial system and extract their maximum utility—has recently started gaining momentum. The idea of substituting lower‐impact secondary production for environmentally intensive primary production gives the circular economy a strong intuitive environmental appeal. However, proponents of the circular economy have tended to look at the world purely as an engineering system and have overlooked the economic part of the circular economy. Recent research has started to question the core of the circular economy—namely, whether closing material and product loops does, in fact, prevent primary production. In this article, we argue that circular economy activities can increase overall production, which can partially or fully offset their benefits. Because there is a strong parallel in this respect to energy efficiency rebound, we have termed this effect “circular economy rebound.” Circular economy rebound occurs when circular economy activities, which have lower per‐unit‐production impacts, also cause increased levels of production, reducing their benefit. We describe the mechanisms that cause circular economy rebound, which include the limited ability of secondary products to substitute for primary products, and price effects. We then offer some potential strategies for avoiding circular economy rebound. However, these strategies are unlikely to be attractive to for‐profit firms, so we caution that simply encouraging private firms to find profitable opportunities in the circular economy is likely to cause rebound and lower or eliminate the potential environmental benefits.

Circular Business Models: Defining a Concept and Framing an Emerging Research Field

“…Although the discussed strategies for closing product and material loops have a strong potential for resource efficiency gains, Zink and Geyer [34] show that what happens at the end-of-life is relatively unimportant if it does not reduce primary production. If the resulting secondary production does not reduce primary production, implementing circular strategies risks increasing overall production, partially or fully offsetting their resource efficiency gains.…”

“…If the resulting secondary production does not reduce primary production, implementing circular strategies risks increasing overall production, partially or fully offsetting their resource efficiency gains. Zink and Geyer [34] describe two mechanisms that can lead to such rebound effects: first, when secondary products are not compatible alternatives to primary products, and second, if they reduce prices and therefore lead to increased consumption. Suggested measures to avoid these rebound effects are to ensure that secondary products are good substitutes for primary ones, and that they target markets where consumers' price sensitivity is low [34].…”

“…Zink and Geyer [34] describe two mechanisms that can lead to such rebound effects: first, when secondary products are not compatible alternatives to primary products, and second, if they reduce prices and therefore lead to increased consumption. Suggested measures to avoid these rebound effects are to ensure that secondary products are good substitutes for primary ones, and that they target markets where consumers' price sensitivity is low [34]. The resulting market impacts of the end-of-life treatment are of critical importance, so displacing primary production should be at the core of circular strategies, rather than a narrow focus on closing resource loops [34].…”

“…This set of circular strategies includes enabling a second life for products and parts through repair or remanufacturing and enabling material recycling when the end-of-life is irreversibly reached (Figure 1). By reintegrating the recovered secondary products, parts, and materials (from here onwards referred to as secondary production [34]) in the value chain, this set of circular strategies also addresses impacts occurring at the beginning of any product life cycle, as they can substitute resource-intensive primary production [34]. See Section 5 for a discussion of this.…”

“…Suggested measures to avoid these rebound effects are to ensure that secondary products are good substitutes for primary ones, and that they target markets where consumers' price sensitivity is low [34]. The resulting market impacts of the end-of-life treatment are of critical importance, so displacing primary production should be at the core of circular strategies, rather than a narrow focus on closing resource loops [34]. However, this inherently causes the cannibalisation of sales, and Zink and Geyer [34] caution that circular strategies that can truly boost resource efficiency gains and reduce environmental impacts are of limited interest for manufacturers of products that can be cannibalised.…”