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Circular Economy

An economic model designed to minimize resource input, as well as waste and emission production

What is a Circular Economy?

A circular economy is an economic model designed to minimize resource input, as well as waste and emission production. Circular economy aims to reach the maximum efficiency in the use of finite resources, the gradual transition to renewable resources, and recovery of the materials and products at the end of their useful life. Moreover, it targets to rebuild all available types of capital, including financial, human, social, and natural. Essentially, a circular economy describes a regenerative economic system.

 

Circular Economy Diagram

 

A circular economy is an alternative to a linear economy, which is based on a take-make-dispose model. The proponents of the economic model believe that it is a viable option to achieve high levels of sustainability without diminishing the profitability of the business or reducing the number of available products and services. In other words, a circular economy does not intend to simply combat the defects of a linear economy but provides a systematic shift that changes the economic system completely.

 

Principles of Circular Economy

The concept of circular economy is based on three (3) main principles:

 

#1 Minimization of waste and pollution

The concept suggests the minimization of waste and pollution by reducing damages from economic activities.

 

#2 Extension of the useful life of products and materials

A circular economy aims to extend the useful life of the products and materials by creating the loops of the materials and products circulating in the economy. The goal is achieved through the active reuse, repair, and remanufacturing of the products and materials utilized in the economy.

 

#3 Regeneration of natural systems

The regeneration of natural systems is one of the fundamental concepts of a (circular) economy. It enhances natural capital and creates the necessary conditions for the regeneration of natural systems.

 

Technological Cycles vs. Biological Cycles

A circular economy involves the important distinction between technological and biological cycles:

 

Technological cycles

Technological cycles involve the management of finite resources. The resources are extracted and used in multiple economic cycles. It is achieved through reuse, repair, and remanufacturing of the materials and resources.

 

Biological cycles

Biological cycles are concerned with the management of renewable resources. Biologically-based materials are designed to be restored into the natural systems and subsequently regenerated to provide renewable resources. In a (circular) economy, consumption occurs only in the biological cycles.

 

Related Readings

CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To learn more about related topics, check out the following resources:

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