What is the Circular Economy?

Image by Emmet via Unsplash

Around the world, interest is rising rapidly amongst sustainability practitioners, policymakers and academics, surrounding the idea of the circular economy (CE). Some see it as a solution for our seemingly limitless compulsion for economic growth. Others are more sceptical, taking the view that CE is just another example of ‘greenwashing’ whereby capitalism attempts to overcome obstacles to capital accumulation in order to continue with business as usual. To further complicate matters, the concept has also become conflated with other trending sustainability buzzwords like degrowth, cradle-to-cradle, and the steady-state economy. So, what exactly is CE? And how can it be put into practice?

CE can be most intuitively defined through its opposition to the modern linear economy, the latter of which is characterised by the flow of energy and materials in an “extract-produce-use-dump” model (Korhonen, et al., 2018). In contrast, CE attempts to slow down and close material and energy feedback loops, thus reducing energy input, emission, leakage and waste. To achieve these outcomes, CE proponents have adopted an acronym known as the 3 R’s: Reduce, Reuse and Recycle. These principles correspond to different stages of the production process – from reducing inputs (energy, raw materials and waste) at the start of the process, reusing them in the middle of the process, and eventually recycling them at the end. Metaphorically, the continuous flow of a linear economy has been likened to a river, whilst CE resembles the cyclical flow of water within a lake through the processes of evaporation and condensation. The diagram below from Metro Vancouver visualises the concept in a simple way.


A brief history of the circular economy idea

Although much contested, most scholars point to Boulding’s essay, ‘The Economics of the Coming Spaceship Earth’ (1966) as the origin of the CE concept. In his spaceman economy thesis, Boulding criticises the neoclassical economic tradition on its anthropocentric assumption that Earth’s biosphere (containing all life) holds unlimited resources for human consumption and is therefore an open system within the universe. Whilst the economy exchanges energy and materials openly with the biosphere (containing all life on Earth), the biosphere itself is in fact a closed system, which only receives energy from the sun and transmits minimal residual energy into space. Boulding therefore proposed that:

“The closed economy of the future might similarly be called the “spaceman” economy, in which the earth has become a single spaceship, without unlimited reservoirs of anything, either for extraction or for pollution, and in which, therefore, man must find his place in a cyclical ecological system”.

More specifically, CE theories can be traced from contributions in industrial ecology, environmental economics, and ecological economics literature. CE first gained prominence in the industrial ecology space, where it still derives the majority of its theoretical and analytical knowledge today. Ghisellini (et al., 2016, p. 14) characterise industrial ecology as the analysis of “the industrial system and its environment as a joint ecosystem characterized by flows of material, energy and information”. The conceptualisation of CE today is still heavily influenced by industrial ecology’s framing of sustainability “in terms of physical rather than monetary flows” (Ghisellini, et al., 2016, p. 15).

CE then gained currency in the environmental economics tradition with the release of Pearce & Turner’s seminal textbook, Economics of Natural Resources and the Environment (1990). In this tradition, CE and nature in general, is presented as a life support system comprising of three economic functions; (1) resource supply, (2) waste sink, and (3) aesthetic commodity. Environmental economics arose as a sub-discipline of the prevailing neoclassical tradition and thus maintains an anthropocentric worldview with emphasis on the utility of the environment for humans, as measured in terms of economic welfare” (Andersen, 2007, p. 135).

Most recently, CE has been finding theoretical support from ecological economics – an emerging interdisciplinary field studying “the interactions and co-evolution in time and space of human economies and the ecosystems in which human economies are embedded” (Xepapadeas, 2018, p. 3177). Concepts around recycling and cyclical material flows (the so-called ‘fourth law’ coined by Georgescu-Roegen) have long been debated by ecological economists and could prove to be a rich source for CE theory.

Putting the circular economy into practice

The worldwide implementation of CE in policy and business still appears to be in its early stages, focused on recycling food and waste over the principles of reduce and reuse. Globally, a stark contrast can be seen between the predominately bottom-up CE policies in Europe and Japan compared with the top-down approach favoured in China. Germany was the first nation to integrate CE principles into national policy with the enactment of the 1996 Closed Substance Cycle Waste Management Act, followed by Japan’s Basic Law for Establishing a Recycling-Based Society  in 2000. In democratic contexts, CE has been implemented through close collaboration between the state, the private sector, non-profit organisations and civil society.

Contrastingly, China’s centrally-planned ‘market socialist’ system lends itself to a political strategy orientated towards transforming industry and socio-economic organisation at all levels from a top-down approach. Su (et al.,2012, p. 215) point to the high ambitions of Chinese CE policy; “rather than being regarded as an incrementally improved environment management policy, the CE has been introduced as a new development model to help China leapfrog into a more sustainable economic structure“. In Australia, CE has started to gain traction in recent years with the idea being embraced by the South Australian government, headlining the 2015 World Resources Forum hosted in Sydney, and earning its first conference in the Australasia region in 2017.

Towards a political-economic understanding of the circular economy

My interest in the CE idea stems from varying life experiences – from disillusionment from working in the financial sector, anger at those threatening future generations by clinging on to power, and a love for all things in our world – both human and non-human. By undertaking a Masters thesis within the Political Economy Department this year, I hope to critically analyse the economic theory underlying the CE idea and understand whether sustainability outcomes can be practically achieved.

From a political-economic perspective, CE’s proposed goal of decoupling economic growth from resource consumption remains an ongoing debate, drawing contributions from neighbouring steady-state and degrowth movements. How do we define decoupling? Can decoupling be geographically constrained within a global capitalist system? How do we understand decoupling as occurring within a complex arrangement of eco-social relations?

CE has also been criticised for being “virtually silent on the social dimension” (Murray, et al., 2017, p. 376). By focusing on the environmental and economic spheres, CE has historically assumed that improved social equality would simply trickle down as a result. More generally, Anderson and Eriksson (2010, p. 14) suggest that “whether capitalism can survive a transformation into a steady-state economy, or whether it is doomed to an unremitting growth, becomes a question of great consequence”.

Technological breakthroughs that enhance the efficiency and reduce the impact of production, distribution and consumption are welcome developments in the face of ecological crisis. But we should take into careful consideration the economic theories that guide their implementation.


Andersen, M. S. (2007). An introductory note on the environmental economics of the circular economy. Sustainability Science, 2(1), 133-140. 10.1007/s11625-006-0013-6
The Basic Law for Establishing the Recycling-based Society 2000, (Japan), no. 110 of 2000. Access here
Closed Substance Cycle Waste Management Act 1994 (Germany). Access here.  
Eriksson, R., & Andersson, J. O. (2010). Elements of ecological economics. London; New York: Routledge.
Andersen, M.S. (2007).  An introductory note on the environmental economics of the circular economy. Sustainability Science, 2(1), 133–140. Access here.
Ghisellini, P., Cialani, C., Ulgiati, S., Akademin Industri och samhälle, Högskolan Dalarna, & Nationalekonomi. (2016). A review on circular economy: The expected transition to a balanced interplay of environmental and economic systems. Journal of Cleaner Production, 114, 11-32.
Korhonen, J. & Honkasalo, A. & Seppälä, J. (2018). Circular Economy: The Concept and its Limitations. Ecological Economics, 143(1), 37-46.
Murray, A., Skene, K., & Haynes, K. (2017). The circular economy: An interdisciplinary exploration of the concept and application in a global context. Journal of Business Ethics, 140(3), 369-380.
Pearce, D. W., & Turner, R. K. (1990). Economics of natural resources and the environment. Baltimore: Johns Hopkins University Press.
Stahel, W. R. (2016). The circular economy. Nature, 531(7595), 435-438.
Su, B., Heshmati, A., Geng, Y., & Yu, X. (2013). A review of the circular economy in China: Moving from rhetoric to implementation. Journal of Cleaner Production, 42, 215-227. 
Xepapadeas, A. (2018). Ecological Economics. In: Macmillan Publishers Ltd (eds). The New Palgrave Dictionary of Economics. Palgrave Macmillan, London.

Wynston Lee is a Master of Political Economy student at the University of Sydney. His thesis will analyse the economic theory underlying the circular economy. Specifically, his research will focus on the circular economy’s proposed decoupling of economic growth from resource consumption and the implications for sustainability practice. Wynston completed a Bachelor of Commerce (Distinction) at the University of New South Wales and has experience working for corporate, startup, think tank and non-profit organisations. His passion lies in sustainability and he enjoys spending his spare time reading, listening to music, and exercising outdoors.

This blog is a part of SEI’s Student Blog Series, which features original content by Honours, Masters and PhD students at the University of Sydney who are undertaking research on environmental issues and topics. If you are a current postgraduate student at the University of Sydney who would like to participate in the series, click here for details.