Date posted: 20/09/2019 5 min read

What’s the meaning of ‘the circular economy’?

The circular economy promotes the effective use and reuse of materials to reduce waste. Is this the future of manufacturing?

In Brief

  • The linear economic model of make-use-dispose creates an obscene amount of waste.
  • The circular economy is based on the effective use and reuse of materials and energy in a manufacturing loop.
  • Designing products that can be repaired as well as recycled is an important element.

By Stuart Ridley

What is the circular economy?

The traditional linear economy is based on a ‘take-make-waste’ production model. In contrast, the circular economy is based on the most effective use and reuse of materials and energy. That goal is achieved through long-lasting design, the repair and reuse of items, and the recycling of materials. Manufacturing is viewed as a loop and the aim is to ‘leak’ as few resources as possible out of the circle. Outputs from one manufacturer become inputs for another, reducing the consumption of virgin materials and the generation of waste.

What’s the meaning of ‘the circular economy’?Figure 1. The circular economy. Click image to enlarge.

8 steps to closing the manufacturing loop

1. Remove waste

End the use of toxic materials.

2. Reduce new production

Cut use of virgin materials, decrease production of single-use products and components.

3. Redesign, replace

Design products, including consumables, that can be made from renewable and/or recyclable materials AND are recyclable back into the system.

4. Recover

Collect products at the end of their useful life and separate their components for reuse, repair and/or recycling.

5. Recycle

Sort recycled components by type so they can be mass-recycled into new components.

6. Reuse, repair, refurbish

Fix existing products with recovered replacement parts and/or recycled materials.

7. Renewable energy

Shift to renewable sources of energy, such as hydro, solar and wind power.

8. Regenerate and repair

Repair natural systems by removing toxins and restoring natural waste recycling processes (such as turning manure, leaf and vegetable litter into soil).

Source: The Waste & Resources Action Program (WRAP) UK,

Economic benefits of the circular economy

Eliminating waste through better design and reusing materials to the maximum extent saves money. Analysis by the Ellen MacArthur Foundation in the UK suggests a shift to a circular system focused on reducing waste, recycling, and regenerating natural resources could deliver significant economic benefits.

47% less traffic congestion in China

Projected benefit of building convenient public transport offerings and vehicle-sharing platforms in China’s cities. Zero emission vehicles could be built using remanufactured components and recycled materials.

70 trillion Yuan (US$10.1 trillion)

Projected savings for households and businesses in China by 2040 that could flow by activating circular economy solutions in China’s cities, lowering the cost of access to goods and services.

US$700 billion

Projected worldwide material savings annually in the fast-moving consumer goods industry (food, beverages and clothing). About 20% of materials input costs could be cut by reusing materials and packaging. Waste can be post-processed to create income streams.

US$550 billion

Health costs associated with agricultural workers’ long-term exposure to pesticides could be cut by US$550 billion globally by switching to regenerative farming systems.

Sources: Towards the Circular Economy Vol.2, 2013; Cities and Circular Economy for Food, 2019; The Circular Economy Opportunity for Urban and Industrial Innovation in China, 2018, all from the Ellen MacArthur Foundation

Who is already reusing and recycling?

Philips Lighting

Philips Lighting

Philips reports it collects 40% of all mercury-containing lamps and recycles more than 95% of collected components in the European market through its co-ownership of 22 collection and service organisations.



Fashion chain H&M offers store vouchers to customers who donate a bag of old clothes to be recycled. According to I:CO, the company that processes the donated clothes, about 40-60% can be resold, 5-10% can be reused as cleaning cloths, 30-40% is recycled into textile fibres for damping and insulating products in the car industry, and 1-3% is used for energy generation.



The Danish toy company plans to use 100% sustainable materials in its packaging by 2025 and is currently testing plant-based and recycled materials to meet its goal of eliminating petroleum-based plastics from its products by 2030.

Sources: Towards the circular economy: Accelerating the scale-up across global supply chains, World Economic Forum, with the Ellen MacArthur Foundation and McKinsey & Company, 2014; “The Lego Group aims for 100% sustainable packaging by 2025”,

Recycling the previously non-recyclable

Recycling business TerraCycle has partnered with British American Tobacco Australia, Philip Morris Ltd and Imperial Tobacco Australia to recycle cigarette butts into useful products such as park benches and waste bins. Cigarette filters look like cotton fibre but are made from cellulose acetate, a polymer that can take from 18 months to 10 years to break down in the environment. The shredded filters can be compounded into plastic pellets to then make a variety of products. Any ash, tobacco or paper recovered from the butts is composted.

Along with cigarette butts, other previously non-recyclable products being given a second life with TerraCycle’s corporate partnerships include Nespresso coffee pod capsules, Colgate toothbrushes and toothpaste tubes, and packaging from beauty products.

TerraCycle was founded in 2001 in the US with a mission to ‘recycle the non-recyclable’. To date, more than 202 million people in 21 countries have collected billions of pieces of waste to send for recycling, and raised nearly US$45 million for charities through TerraCycle’s rewards system.

Taking out the rubbish

Rubbish created annually per person

  • Australia 560.7kg
  • New Zealand 698kg
  • OECD average 523.2kg

Source: OECD Data: Municipal Waste, 2015 figures (latest available including Australia)

Waste recycled


56% of household waste recycled


50% of waste recycled


28% of waste recycled

Sources: The Circular Economy: An explainer, Department of Parliamentary Services, Parliament of Victoria, 2018; Stats NZ; World Economic Forum


10,000 tonnes of waste recycled = 9.2 jobs

Estimate of employment opportunities for every 10,000 tonnes of waste recycled in Australia.

Source: The Circular Economy: An explainer, Department of Parliamentary Services, Parliament of Victoria, 2018.

Read more:

Circular Business Models: Developing a sustainable future by Mats Larsson.

Explores how to organise, fund and apply a transformation project to an organisation using circular business models. Applicable to diverse industries from manufacturing to transport.

Download from CA Library