Circular Economy: What Is It?, Definition, Examples, & Model

By now, most people recognize that rethinking the take-make-waste system is essential to managing the environmental crisis. One possible alternative is the circular economy. It is an alternative model to the traditional system that’s been used since the Industrial Revolution. Let’s learn more about the circular economy.

What is the Circular Economy?

The circular economy is based on the principles of designing out waste and pollution, keeping products and materials in use, and regenerating natural systems. There is a lot of waste in our current system. According to the World Resources Institute, over 100 billion tons of resources flow every year and 60% end up as waste or greenhouse emissions. Similarly, we waste approximately a third of all food produced.

The circular economy offers a system where waste and pollution are reduced through product design. Importantly, 80% of environmental impacts are determined during the design stage. With a change in mindset, waste becomes a design flaw instead of being an inherent byproduct of everyday consumption.

Adopting a circular economy cannot happen all at once. A circular economy model requires collaboration across areas of society. New policies must be created for businesses, governments, products, jobs, and cities.

There are three clear ways to support a transition to a circular economy:

  1. Consume less – by avoiding fast fashion, plastics, and food wasters.
  2. Consume better – by transitioning to a plant-based diet, using car shares, and streaming digital content.
  3. Create systematic change – by investing in infrastructure to make recycling easy, taxing packaging products made from more than 30% virgin materials, and making consumer-facing products more durable.

Industry Leaders

The EU is ahead of the game in terms of adopting legislation to advance the circular economy. The European Commission adopted a new circular economy action plan in March 2020 as a major component of the European Green Deal. The measures introduced under the plan include: making sustainable products the norm in the EU, empowering consumers and public buyers, ensuring less waste, and focusing on sectors where resource reuse is the most impactful (ex: electronics, batteries, plastics, textiles, construction, and food/water).

Circular Economy Examples

Circular economy examples can be found in almost any industry. Let’s take the garment and fashion industry. Currently, less than 1% of all garments are fully recycled. 99% are downcycled, incinerated, or placed in a landfill, equating to a loss of $100 billion USD annually. The cost of dis-assembly is a major contributor to the low rate of recycling. Brussels-based company Resortecs works to improve the ease of clothing recycling and close the loop in the fashion circular economy by producing dissolvable stitches.

Paris-based Vestiaire Collective is a leader in the circular economy within the pre-owned fashion segment. Now valued at $1 billion, the company has a platform that allows users to sell pre-owned luxury brands at a 30-70% discount.

For one more circular economy example, French automobile maker Renault Group implements the circular model in the various stages of the production life cycle. It transforms end-to-life parts and vehicles into a resource for the production of new vehicles and parts.

Circular Economy Model

The circular economy model features different sources of value creation than the traditional model. Sources of value creation in the circular economy include the power of the inner circle, the power of circling longer, the power of cascading use across industries, and the power of pure inputs and designs.

The power of the inner circle is the minimized material use in comparison to linear production systems. The power of circling longer refers to the number of consecutive cycles or the time in each cycle. In each case, a prolonged cycle saves the energy otherwise used to create a new product. The power of cascaded use refers to the reuse of materials across the value chain. This means that a material from one industry, such as clothing production, is later reused in another industry, such as furniture upholstery production. The power of pure inputs refers to the fact that uncontaminated material streams increase collection and redistribution efficiency and ultimately increase material productivity.

Barriers to the Implementation of the Circular Economy

There are barriers to the implementation of the circular economy. Many companies still follow models that focus on short-term value creation. At a higher level, GDP does not consider social and environmental externalities which can discourage the creation of value in these areas as well as the implementation of policies to encourage a circular model.


The circular economy model presents an opportunity to address waste creation and work toward a more sustainable world. Entrepreneurs and consultants should consider business opportunities to engage in the circular economy. Now is the time to look into the circular model!

We trust this article builds your business acumen and knowledge!


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