What Is a Circular Economy?

by Irene Domínguez Pérez

Right now, the world’s economy is what we would call a ‘linear economy’. We take resources from the ground to make products, which we use, that later become waste as they are discarded when they are no longer needed or wanted. Take-make-waste. This is the current model of economic growth, based on the intensive use of natural resources [1].

However, this model is unsustainable in the long term, since we are already surpassing several planetary boundaries. Circular economy is a model that proposes a change towards a new economic system. This concept gained momentum since the late 1970s [2].

The model is based on three principles, according to the Ellen MacArthur Foundation [1]:

  1. Design out waste and pollution
  2. Keep products and materials in use
  3. Regenerate natural systems

All in all, the circular economy is ‘a systemic approach to economic development designed to benefit businesses, society, and the environment’ [3]. This means that instead of focusing purely on economic growth – as our modern economic system does – you look at the system as a whole, focusing on the interconnections between the different actors. You try to close the loops so that materials stay in the system for as long as possible, and in a way that it brings back value to natural systems to actively improve the environment.

This can be appreciated in the Circular Economy System Diagram in figure 1, also known as ‘Butterfly Diagram’. 

DiagramaDescripción generada automáticamente

Fig. 1. The so-called butterfly diagram shows the key aspects of a circular economy. The image is courtesy of the Ellen MacArthur Foundation [1].

As shown in fig. 1, material and product flows are depicted through ‘the value circle’ [4]. This diagram is mainly built upon the Cradle to Cradle school of thought, which is a design philosophy that considers every component of industrial processes to be nutrients belonging to two main categories: technical (portrayed in right side of the diagram) and biological (represented on the left side) [2]. This model eliminates the concept of waste, reframing it as ‘food’; encourages the use of renewable energy, and promotes diversity in human and natural systems [2].

Measuring circularity 

Since circularity is based on a systemic approach, it can be challenging to measure the actions taken by organisations and initiatives. To tackle this, Cradle to Cradle’s authors went on to develop Cradle to Cradle Certified™ (also known as C2C certification) which, apart from recognising product quality, is a process that leads to better products, companies and communities [5, 6].

Another tool recently published by Circle Economy and PACE (the Platform for Accelerating the Circular Economy) is the open-access guide ‘Circular metrics for business’. This document gives an overview of various powerful metrics that help businesses navigate the complexity of the circular economy. With it, businesses are able to measure and fast-track circularity in their products and processes [7].

Cities and the Circular Economy

Cities are home to more than half of the world population. Unsurprisingly they are key in achieving a circular economy. With their high geographic density of resources, capital, data, and talent, they make perfect hubs for innovation [8].

A circular city is one that thrives economically, that is liveable and resilient [8]. This is achieved by changing the way urban systems are designed, financed, used and repurposed. This would mean a circular mobility system (similar to Paris’ 15-minute city), a new paradigm in construction, a shift to a better food system and a change in the way we produce and consume products and services [8].

On another note, the term ‘smart cities’ is becoming increasingly common when we talk about urban sustainability. However, is it the same as a ‘circular city’? The answer is no, and here is why: while smart cities put the focus on efficiency (which has to do with maximising the output with a minimum input), a ‘circular city’ concentrates on efficacy (ability to produce a desired effect – in this case, a systemic change) [9]. Therefore, the concept of smart cities, which are mainly focussing on improving system efficiency – usually through Internet of Things (IoT) – differs from circular cities primarily because of the holistic dimension of the latter [9]. 

Considering the global and interconnected character of the issues we are facing today, a systemic change is needed. A circular economy is just that: a systemic shift towards a better way.

Author’s note: If you are interested in knowing more about this topic, I recommend that you explore Ellen MacArthur Foundation website, where they have extremely interesting and didactic resources.


[1] Ellen MacArthur Foundation. What is the circular economy? https://www.ellenmacarthurfoundation.org/circular-economy/what-is-the-circular-economy (accessed on 24th July 2021)
[2] Ellen MacArthur Foundation. Circular Economy Schools of Thought. https://www.ellenmacarthurfoundation.org/circular-economy/concept/schools-of-thought#:~:text=The%20circular%20economy%20concept%20has,%2C%20thought%2Dleaders%20and%20businesses.(accessed on 24th July 2021)
[3] Ellen MacArthur Foundation. The Circular Economy in Detail. https://www.ellenmacarthurfoundation.org/explore/the-circular-economy-in-detail (accessed on 24th July 2021)
[4] Ellen MacArthur Foundation. Butterfly Diagram. https://www.ellenmacarthurfoundation.org/circular-economy/concept/infographic (accessed on 24th July 2021)
[5] William McDonough. Cradle to Cradle Products Innovation Institute. https://mcdonough.com/organizations/cradle-cradle-products-innovation-institute/ (accessed on 24th July 2021)
[6] C2C Certified. What is Cradle to Cradle Certified. https://www.c2ccertified.org/get-certified/product-certification (accessed on 12th July 2021)
[7] Circle Economy and PACE. Circular metrics for business. October 2020. https://www.circle-economy.com/resources/metrics (accessed on 12th July 2021)
[8] Ellen MacArthur Foundation. Cities and the Cicular Economy. URL: https://www.ellenmacarthurfoundation.org/explore/cities-and-the-circular-economy (accessed on 24th July 2021)
[9] ISPI (Istituto per gli Studi di Politica Internazionale). Cities of Tomorrow: The Circular Cities. URL: https://www.ispionline.it/it/pubblicazione/cities-tomorrow-circular-cities-22057 (accessed on 24th July 2021)
Categories Resource Efficiency and Circular Economy

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