Circular economy — the solution to both climate and jobs?

Europe Economics Blog
Jan 22, 2018

What is the circular economy?

The idea of the circular economy is to move away from a linear ‘take, make, dispose’ model of economy into a more restorative and regenerative system designed to minimise waste in the ongoing process of maintenance, repair, reuse and recycle. As a starting point, the circular economy acknowledges the fact that our economy is embedded within the finite limits of our planet. Therefore, instead of allowing for a free flow of resources (such as energy, living matter and materials in the diagram below) through our economy, we should aim to close the loop — use as much as possible of what the economy produces to minimise the amount of waste (including emissions and energy leakage) that gets back into the environment. This might involve not only reducing waste by recycling (or, in most cases, downcycling[1]) what we produce, but also — more importantly — producing goods in a way that allows for a longer useful life and for a genuine recycle of the materials used in their production.

Source: Kate Raworth and Marcia Mihotich.

Reproduced after: George Monbiot (2017), “Finally, a breakthrough alternative to growth economics — the doughnut”, The Guardian, 12 April 2017.

On the face of it, the circular economy appears as another way to protect natural environment, rather than create employment. However, the circular economy is, in fact, a much broader and more complex concept going beyond the ecological aspect. According to the Ellen MacArthur Foundation,[2] “[a] circular economy seeks to rebuild capital, whether this is financial, manufactured, human, social or natural.”[3] As a result, it is not only about reducing the amount of emissions in the atmosphere and plastic in landfills; it is about creating an interconnected economic system where all types of resources are jointly being used as effectively as possible given all the interactions and feed-back loops between all the different parts of the system.[4] Labour being one of those resources.

How could circular economy help in job creation?

Moving away from efficiency understood in a compartmentalised manner, where each activity is evaluated in isolation from the ripple effects it produces for other parts of the system, means that labour productivity — which was the main focus of past industrial transitions — could no longer be the ultimate objective by itself. In the circular economy, if labour productivity (i.e. producing more with less employees) comes at a cost of vastly inefficient use of natural resources (not to mention that social costs of unemployment), it is unlikely to be the optimal solution. In particular, as the circular economy is to strive to reduce the wastefulness with which current economies utilise raw materials, it would need more labour to produce equal value.[5] Therefore, as a general rule of thumb one could expect a transition towards the circular economy to create more jobs than a linear ‘take, make, dispose’ model would.

A number of studies in Europe show a positive impact of a transition towards the circular economy on job creation. They include the outlook on the impacts which — under the most dynamic of the transition paths — could be expected by 2030:

  • Two studies by the Club of Rome indicate that the circular economy could come up with more than 100,000 jobs in Sweden, 75,000 jobs in Finland, 200,000 jobs in the Netherlands, 500,000 jobs in France, 400,000 jobs in Spain,[6] and 150,000 jobs in Czech Republic.[7]
  • WRAP’s report argues that the transition to the circular economy in Europe as a whole could create up to 1.2 to 3 million jobs and reduce unemployment by around 250,000 to 520,000. The largest number of those jobs are expected to be created in Germany, the UK, and Italy.[8]
  • A study by the European Remanufacturing Network shows that, in European remanufacturing alone, there could be 34,000 to 65,000 new jobs.[9]
  • In the UK, a circular economy transformation could create over 500,000 jobs and reduce unemployment by around 100,000.[10]

What’s important is that, according to those studies, the new jobs are not merely substitutes for the ones which already exist. The transition would not boil down to a one-to-one replacement of jobs in fossil fuel energy to jobs in renewable energy. The circular economy is also supposed to create lots of entirely new jobs for the currently unemployed.

Indeed, the report by Green Alliance argues that such a transition could reduce the structural mismatch on the labour market, i.e., create jobs across regions (including those with higher unemployment) and require various level of skills (from ‘low’ in recycling and reuse to ‘medium’ in remanufacturing to ‘high’ in biorefining).[11]

That said, as with any systemic transformation, things do not happen instantaneously — in the transition period, where not all companies and sectors act quickly enough, we can expect there to be winners and losers.[12]

Winners and losers

A detailed analysis of winners and losers would require a more precise definition of what the transition towards the circular economy would entail exactly — which sectors would grow and how.

In general, the circular economy would not support mining and quarrying industries, which would lose out. Along with phasing out fossil fuels, non-renewable energy companies would also shrink or disappear. On the other hand, agriculture and forestry could benefit from an increased demand for biofuels. In addition, the demand for components for renewable power plants is likely to rise, as well as the demand for installing and construction services.

Increased material efficiency would diminish the demand for virgin materials; however, it should build up a higher demand for secondary materials. Due to longer lifespans, manufacturing of durable goods (cars, equipment, furniture etc.) would decline, but at the same time remanufacturing, maintenance, repair, recycling, intelligent design companies would grow.[13] Another possibility within the manufacturing space is a shift in ownership models — from owning a product to renting one, with some additional Product-as-a-Service models.[14]

Moreover, the transition to more efficient use of resources is likely to require rebuilding existing constructions or building new ones — thus giving a strong boost to the construction sector and companies offering know-how on how to achieve efficiency gains in practice.[15]

Finally, it is noteworthy that the sectors of the UK economy which are likely to shrink in the circular economy have been already declining in the past couple of decades. As of September 2017, the number of employees in the mining, quarrying and manufacturing sectors was smaller than in a range of repair, maintenance, rental & leasing, agriculture, waste collection, construction/architectural/engineering services.[16] Therefore, the transition to the circular economy has the potential to accelerate and moderate the current trends rather than utterly reverse the direction the UK economy is heading.

Source: ONS.

Where’s the catch?

If the circular economy is such a great idea, why has the transition not happened yet? McKinsey report claims that, firstly, it is due to non-optimal public sector and policy makers’ decisions, and, secondly, the rebound effects — i.e. a consumers’ tendency to go back to less efficient, more individualised kind of transport, food, or floor space as soon as any cost savings appear due to more efficient management of resources. Apart from those two restraining factors, the report argues the circular economy could — purely environmental benefits aside — increase employment as well as produce welfare gains and higher GDP.[17] So it seems to be just one of those things everyone knows is good for you, but no one is actually determined enough to make an effort of making it happen.

[1] With many materials commonly recycled, quality of the recovered material is lower than that of the original one. In 'Europe’s circular-economy opportunity' report McKinsey says that “steel, polyethylene terephthalate (PET), and paper lose 30 to 75 percent of material value in the first-use cycle.” Hence, the term ‘downcycling’.

[2] The Ellen MacArthur Foundation was established in 2010 with the aim of accelerating the transition to the circular economy.

[3] The Ellen MacArthur Foundation, ‘Circular Economy System Diagram’.

[4] The Ellen MacArthur Foundation, ‘Efficiency vs effectiveness’.

[5] WRAP (2015), “Economic Growth Potential of More Circular Economies”.

[6] The Club of Rome (2016), "The Circular Economy and Benefits for Society. A study pertaining to Finland, France, the Netherlands, Spain and Sweden".

[7] The Club of Rome (2016), "The Circular Economy and Benefits for Society. A study pertaining to the Czech Republic and Poland".

[8] WRAP (2015), “Economic Growth Potential of More Circular Economies”.

[9] Circulate News (2016), 'New report on EU remanufacturing: untapped economic, employment and environmental potential'.

[10] Green Alliance (2015), "Employment and the circular economy. Job creation in a more resource efficient Britain".

[11] Green Alliance (2015), "Employment and the circular economy. Job creation in a more resource efficient Britain".

[12] McKinsey & Company (2015), 'Europe’s circular-economy opportunity'.

[13] The Club of Rome (2016), "The Circular Economy and Benefits for Society. A study pertaining to Finland, France, the Netherlands, Spain and Sweden".

[14] Circle Economy (2018), "The circular phone".

[15] The Club of Rome (2016), "The Circular Economy and Benefits for Society. A study pertaining to Finland, France, the Netherlands, Spain and Sweden".

[16] The standard Industrial Classification does not always align with the circular vs non-circular activities. Here, ‘mining, quarrying and manufacturing‘ combines the following: B5-6: Mining of coal and lignite; Extraction of crude petrol/gas; B7-8: Mining of metal ores; Other mining and quarrying; B9: Mining support service activities; C13: Manufacture of textiles; C14: Manufacture of wearing apparel; C15: Manufacture of leather and related products; C16: Manufacture of wood and wood and cork products; C17: Manufacture of paper and paper products; C18: Printing and reproduction of recorded media; C19: Manufacture of coke and refined petroleum products; C20: Manufacture of chemicals and chemical products; C21: Manufacture of basic pharmaceutical products; C22: Manufacture of rubber and plastic products; C23: Manufacture of other non-metallic mineral products; C24: Manufacture of basic metals; C25: Manufacture of fabricated metal products; C26: Manufacture of computer, electronic & optical products; C27: Manufacture of electrical equipment; C28: Manufacture of machinery and equipment n.e.c.; C29: Manufacture of motor vehicles, trailers and semi-trailers; C31: Manufacture of furniture; C32: Other manufacturing. ‘Repair, maintenance, rental & leasing, agriculture, waste collection, construction/architectural/engineering services’ combines: A1: Crop and animal production, hunting and related service activities; A2: Forestry and logging; C33: Repair and installation of machinery and equipment; E38-39: Waste collection, treatment and disposal; Remediation; F42: Civil engineering; G45: Wholesale and retail trade and repair of motor vehicles and motorcycles; M71: Architectural and engineering activities; technical testing & analysis; N77: Rental and leasing activities; N81: Services to buildings and landscape activities; S95: Repair of computers and personal and household goods; S96: Washing and (dry)-cleaning of textile and fur products.

[17] McKinsey & Company (2015), 'Europe’s circular-economy opportunity'.

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