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The Concept of Circular Economy: its Origins and its Evolution

Working Paper · January 2018

DOI: 10.13140/RG.2.2.17021.87523

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 The Concept of Circular Economy:
its Origins and its Evolution

Abstract
The fundamental need for an alternative to the traditional linear model of growth has led to the
emerging debate about circular economy (CE), described as an economy with closed material
loops. While the topic of CE has been receiving increasing attention in the academic and grey
literature over the last years, divergences on what a circular economy entails have led to the
different points of view. As a matter of fact, the concept of a circular economy cannot be traced
back to one single date or author, rather to different schools of thought. However, getting a
common understanding of the concept of CE is crucial as it is a prerequisite for a successful
implementation in businesses. Therefore, this paper aims at creating a common point of view on
the concept of CE through a review of the different schools of thought and how they have
contributed to the development of the concept of CE.

Thibaut Wautelet
thibautwautelet@gmail.com
17th January 2018
Table of contents

Table of contents .......................................................................................................................... i

List of figures .............................................................................................................................. ii

List of abbreviations ................................................................................................................... ii

1 Introduction ............................................................................................................................. 1

2 Exploring the origins of the concept of circular economy...................................................... 2

2.1 The Spaceship Earth and environmental economics ...................................................... 2

2.2 Industrial Ecology ........................................................................................................... 3

2.3 Cradle to Cradle .............................................................................................................. 5

2.4 The Performance Economy........................................................................................... 10

2.4.1 A closed-loop economy ............................................................................................ 11

2.4.2 Selling performance instead of products................................................................... 15

2.4.3 The link with a circular economy ............................................................................. 16

2.5 The Blue Economy ....................................................................................................... 17

2.6 Biomimicry ................................................................................................................... 19

3 Creating a common point of view on the concept of circular economy ............................... 21

References ...................................................................................................................................... iv

i
List of figures
Figure 1 - The road from less negative to more positive ................................................................ 7
Figure 2 - Distinction between biological and technical cycles in the Cradle-to-Cradle design .... 8
Figure 3 - The main loops of a circular economy ......................................................................... 13
Figure 4 – The influence of the various schools of thought on circular economy........................ 22

List of abbreviations
CE Circular Economy
EMF Ellen MacArthur Foundation
EU European Union

ii
1 Introduction
Over the last 150 years, our industrial economy has been dominated by a one-way model of
production and consumption in which goods are manufactured from raw materials, sold, used, and
then incinerated or discarded as waste. In the face of a rising global population and the associated
growing resource consumption and negative environmental impacts, it becomes increasingly
apparent that business as usual is not an option for a sustainable future. While the concept of a
circular economy has been discussed since the 1970s, switching from the current linear model of
economy to a circular one has recently attracted increased attention from major global companies
and policymakers. In time for the World Economic Forum 2012 in Davos, the Ellen MacArthur
Foundation (EMF) and McKinsey Company published a report which evaluates the potential
benefits of the transition to a circular economy (CE): it could create an opportunity of US$630
billion a year for only a subset of the EU manufacturing sectors (Ellen MacArthur Foundation
(2012, p. 5)). Next to the huge economic benefits, the EMF pointed out the significant
environmental and social benefits derived from a circular economy. These figures have created a
huge awareness for the topic as many companies were willing to seize their chance to get a part of
this potential revenue opportunity.

As a result of the growing interest in the business opportunities created by a CE, its practical
applications to modern economic systems and industrial processes have recently gained
momentum among companies and governments. In that regard, understanding the concept of CE
is a key prerequisite for a successful implementation within a business. As the concept of CE has
been evolving since the 1970s building on different schools of thought, its description and
principles have been stressed from the different points of view in the academic and grey literature.
Therefore, it is crucial to get a common understanding of what a circular economy entails.
Accordingly, the paper explores the origins of the concept of circular economy as well as its
evolution with the aim to create a common point of view on the concept of CE. For this purpose,
the chapter 2 provides a review of the five main schools of thought from which the concept of
circular economy has evolved (Industrial Ecology, Cradle to Cradle, Performance Economy, Blue
Economy and Biomimicry) and a summary of the contribution from the economist Boulding and
the environmental economists Pearce and Turner to the development of the concept of CE. The
chapter 3 summarizes how the concept of CE has evolved building on these schools of thought.

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2 Exploring the origins of the concept
concept of circular economy
The concept of a circular economy cannot be traced back to one single date or author, rather to
different schools of thought. Many scholars considered that the circular economic system was
primarily introduced by the environmental economists Pearce and Turner, who built their
theoretical framework on previous studies of the ecological economist Kenneth Boulding
(Andersen (2007, p. 133), Ghisellini et al. (2016, p. 15), Greyson (2007, pp. 1383–1384),
Heshmati (2015, p. 2), Murray et al. (2017, pp. 372–373), Su et al. (2013, p. 216)). However, these
environmental and ecological economists are not considered as the founders of the concept.
Accordingly, an extensive review of the literature of the last two decades indicated that circular
economy origins are mainly rooted in ecological and environmental economics and in industrial
ecology (Ghisellini et al. (2016, p. 17), Murray et al. (2017, pp. 372–373)). Moreover, according
to Ellen MacArthur Foundation (2012, pp. 26–27), more recent theories such as performance
economy, cradle to cradle, biomimicry and blue economy have contributed to further refine and
develop the concept of CE. In this chapter, we examine the different schools of thought, looking
at how they prioritize different aspects and outcomes and how they are integrated into the concept
of circular economy. It is important to note that this summary only covers the main aspects of each
school of thought.

2.1 The Spaceship Earth and environmental economics

In his paper ‘The economics of the coming Spaceship Earth’, Boulding argued that a circular
economic system is a prerequisite for the maintenance of the sustainability of human life on Earth
(Boulding (1966, pp. 8–10)). Boulding describes the so-called “cowboy economy” as an open
system in which the natural environment is typically perceived as limitless: no limit exists on the
capacity of the outside to supply or receive energy and material flows. This linear economy is
characterized both by environmental impacts such as pollution and by social impacts such as
exploitative and violent behaviors. However, Boulding argued that this economy is built around a
flawed understanding of the physical possibility in the long run. In contrast to the cowboy

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economy, Boulding introduced the concept of the “spaceman economy”1, considering the Earth as
a closed system (with practically no exchanges of matter with the outside environment). In this
economic system, the economy and the environment are characterized by a circular relationship
where everything is input into everything else.

Environmental economics have emerged in opposition to the misleading perception (conveyed by

conventional economics) of the relationship between an economic system (a set of institutions and
activities designed to efficiently allocate scarce resources among things that provide benefits,
thereby satisfying human needs and desires) and the environment (made up of ecosystems and
interrelationships between living species and with non-living or abiotic structure) that surrounds
and underpins. Simple economic models have ignored the economy-environment
interrelationships. In their book ‘Economics of natural resources and the environment’, Pearce
and Turner explains the shift from the traditional linear or open-ended economic system to the
circular economic system (Pearce and Turner (1990)). In the chapter 2 of their book, they describe
a circular economic model based on the hypothesis that there is an extensive interdependence
between the economy and the environment. According to these authors, four economic functions
of the environment can be identified: amenity values (e.g. the beauty of landscapes), provision of
resources, sink for waste and emissions, life-support system (Turner et al. (1993, pp. 17–24)).

2.2 Industrial Ecology

The notion of a circular economy has also its roots in industrial ecology (IE) (Preston (2012, p. 3),
Andersen (2007, p. 133), Murray et al. (2017, pp. 372–373)). Industrial ecology arose from the
perception that human economic activity is causing unacceptable environmental changes and
emerged in 1970s in opposition to the consideration of industrial system as separate from the
environment (e.g. factories and cities on one side and nature on the other) (Erkman (1997, p. 1).
The core idea of IE is the redesign our industrial society as a specific ecosystem within the

1
Boulding considers the Earth as 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 which is capable of
continuous reproduction of material form even though it cannot escape having inputs of energy.” (Boulding (1966,
pp. p8))

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biosphere. Accordingly, the concept of IE relies on a systemic, comprehensive and integrated
analysis of the industrial system and all its components within its environment, considering them
as a joint ecosystem (Graedel (1995, p. 23)). This approach aims at understanding how the
industrial system works, how flows of material and energy (called industrial metabolism) are
regulated and how it interacts with the biosphere. The analysis of the industrial metabolism is then
used as a basis to optimize the total industrial materials cycle (from virgin material to finished
product to ultimate disposal of wastes) through transposition of the nature principles or at least
through inspiration from them (Iung and Levrat (2014, p. 17)).

“Industrial ecology aims at a more elegant, less wasteful network of industrial processes” (Ausubel
(1994, p. 140)). By using the term “elegant”, Jesse Ausubel wants to emphasize the socio-
economic and environmental benefits of IE, which generates more wealth with fewer resources
and fewer impacts on the biosphere. Furthermore, industrial ecology does not only address issues
of pollution and environment by looking at the energy and material flows of one product and one
company. It aims at looking at the industrial system as a whole (Erkman (2001, p. 532)). In that
regard, industrial ecology challenges the competitiveness dogma by promoting collaboration
between distinct entities to ensure efficient resource management (i.e. creation of eco-industrial
networks). Therefore, IE represents a way for companies to better exploit their products and
resources including their waste more efficiently and thus more profitably.

In order to move towards a sustainable industrial society, Erkman (2001, pp. 533–534) defines
four key principles guiding the reorganization of our industrial ecosystem:

• Waste and by-products must systematically be valorized: traditional recycling is just

one among the many other material recovery strategies. Erkman calls for the creation of
eco-industrial networks: smart networks of resources and waste in which the residues of
one company can become the inputs of another industrial process. Industrial symbiosis is
probably the best-known example of a working industrial ecosystem. For example, Frosch
and Gallopoulos (1989) developed the notion of industrial ecosystem in manufacturing
industry by presenting different examples where the waste and by-products from one
industrial process can serve as raw materials for another, thereby reducing the use of raw
materials, waste and pollution.

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 • Loss caused by dispersion must be minimized: products and services must be designed
to minimize dispersion or at least eliminate its harmful effects on the environment and the
health.
• The economy must be dematerialized: the goal is to minimize the total material flows
while ensuring equivalent or higher level of services are provided. Within the context of
industrial economy, one of the best ways to dematerialize the economy is to evolve towards
a service-oriented society in which the use of products is prioritized over its selling. While
recent advancements in ICT technologies has contributed to the dematerialization of the
economy, the real impact on resource consumption might be ambiguous due to the well-
known “rebound effect”. For example, the increasing use of electric vehicles requires a
growing amount of electricity which is still mainly generated from fossil-based sources.
• Energy must rely less on fossil hydrocarbon.

A large part of industrial ecology literature deals with the development and application of various
methods for measuring environmental impacts of industrial production and human consumption
(e.g. Life Cycle Assessment) and describing practical cases of products, materials and eco-
industrial regions (Vermeulen (2006, p. 580)). While the economic and environmental benefits of
the ecosystem approach for the design of industrial system have been highlighted, its practical
implementation is still limited. Current technology is often inadequate to support such approach
and inter-enterprises synergies are not naturally created. Therefore, the intervention of an external
facilitator (through publicly-founded projects) is often seen as a requirement to facilitate the
detection and the implementation of such synergies.

The circular economy builds on IE’s concept for the analysis and optimization of industrial
systems at a micro-level, scaling it up to an economy-wide system in which products and processes
are redesigned to maximize the value of resources through the economy. Accordingly, industrial
ecology promotes the transition from open to closed cycles of materials and energy thus leading
to less wasteful industrial processes (Ehrenfeld and Gertler (1997, p. 67)).

2.3 Cradle to Cradle

While the term Cradle to Cradle (C2C) was coined by Walter Stahel in opposition to the current
linear economic system (Making It Magazine (2013)), the concept of C2C was firstly developed

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by the architect William McDonough and the chemist Dr Michael Braungart in their book Cradle
to Cradle: Remaking the way we make things (McDonough and Braungart (2002)) and further
elaborated in The upcycle: Beyond sustainability - designing for abundance (Braungart et al.
(2014)). In their books, McDonough and Braungart called for a new way of designing our material
goods and for going beyond the concept of eco-efficiency which only focuses on reducing the
negative impacts of human activity on the environment.

Braungart et al. (2006, pp. 1339–1340) recognized the potential of eco-efficient strategies2 in the
short term to reduce the ecological impact of business' activities (creating at the same time costs
savings), but they argued that they are insufficient to achieve the goals in long run. According to
McDonough and Braungart (2002, p. 51), “eco-efficiency is about getting more from less”.
However, less bad is not good! For example, a car can be more eco-efficient (reduction of petrol
consumption and CO2 emissions) but it is still polluting. Furthermore, Braungart and McDonough
considers that the large majority of recycling constitutes “downcycling” because products are not
designed to be recycled and the recycling process reduces the quality of materials making them
suitable for use only in lower value applications. Therefore, eco-efficiency strategies address
problems instead of the source and thus they do not call for a deep redesign of our contemporary
industry.

In the concept of eco-effectiveness, the notion of waste is erased and the focus is shifting from
reduction of quantity for negative impact to increase of quality for positive impact. As illustrated
by Figure 1, eco-effectiveness means “working on the right things - on the right products and
services and systems - instead of making the wrong things less bad.” (McDonough and Braungart
(2002, p. 76)). For example, while the eco-efficient strategy seeks to reduce the toxicity of products
by replacing known toxic substances, an eco-effective approach focuses on the quality of the
emissions rather than the quantity of the outputs. By making these emissions healthy, eco-effective
approach addresses the source of the problem and aims at re-establishing a positive relationship
between human activity and the environment. Therefore, the goal of eco-effectiveness strategies
is “not to minimize the cradle-to-grave flow of materials, but to generate cyclical, cradle-to-cradle

2
Eco-efficient strategies encompass different approaches such as dematerialization, increased productivity, 3R
principles (Reduce, Reuse, Recycle) and product life extension.

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“metabolisms” that enable materials to maintain their status as resources and accumulate
intelligence over time (upcycling)” (Braungart et al. (2006, p. 1338)).

Figure 1 - The road from less negative to more positive

Source: Hansen et al. (2014, p. 20)

In their book "Cradle to Cradle: remaking the way we make things", McDonough and Braungart
describe three design principles which provide a basis for the transition from eco-efficiency to eco-
effectiveness. These design principles are inspired by nature and by the biological metabolism.

• Waste equals food: Waste does not exist in nature. Accordingly, C2C design considers all
materials as nutrients eradicating the notion of waste and uses the safe and productive processes
of nature’s biological metabolism as a model for developing a technical metabolism flow of
industrial materials (Ellen MacArthur Foundation (2017b)). As illustrated by Figure 2, the
principle waste equals food implies that all products and industrial processes should be designed
in such a way to enable the perpetual flow of the nutrients within one of two distinct
metabolisms (cycles): the biological metabolism and the technical metabolism (Braungart et al.
(2006, p. 1343)). C2C design distinguishes two types of products depending on their use:
products of consumption and products of service.

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 Figure 2 - Distinction between biological and technical cycles in the Cradle-to-Cradle design

Source: EPEA (2017)

On the one hand, products of consumption (consumed during their life cycle through, for
example, physical degradation or abrasion) may end up in our natural systems and thus they
should be designed to return safely to the natural environment and to have a positive impact on
it if possible. These products include textiles, brake pads, shoe soles, etc. Therefore, a
consumption product should be made of biodegradable materials (i.e. natural/plant-based
materials) which can become, after use, biological nutrients for living systems and flow in
biological cycles. For example, soap will end in water when used and thus it could be designed
to improve the water quality instead of polluting it.

On the other hand, technical nutrients are materials of human artifice (e.g. synthetic or mineral)
which should circulate within a closed-loop system of manufacture, recovery and reuse (the
technical metabolism), without contaminating the biosphere. In that regard, the best strategy to
keep technical nutrients flowing within the technical cycle is to sell performance or a product
of service because it enables the manufacturers to take back the materials and putting them back
in the technical cycle (McDonough and Braungart (2002, p. 111)). Furthermore, the product of
service strategy provides mutual benefits to the manufacturer and the customer (Braungart et
al. (2006, p. 1343)). As companies keeps ownership of the products, they are encouraged to
design products of high quality, durable and easily re-manufacturable so they can maintain them

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 at their highest value through many product life cycles and even upcycle them through the
combination of reuse and innovation. In addition, they are incentivized to provide the best
products because the better the needs of customers are fulfilled the more likely they are to
remain customers after the end of the service period. Moreover, this system enables consumers
to have access to higher quality and less expensive products without assuming their material
liability (i.e. what to do at the end of the product’s useful life?).

As in the reality many products are a mix of “consumable” and “usable” materials, it is
important to understand what C2C design means for these products. In that regard, tires are a
good example to illustrate the application of C2C design principle. Tires should be designed in
such way that the tread pattern (which is consumed through abrasion during its usage life) is
made of biodegradable materials. By doing so, the tire wear particles can reenter safely the
environment and even have a positive impact on it (e.g. acting as a fertilizer). Furthermore, the
tire manufacturers should sell the tires as a service (e.g. pay-per-kilometer) enabling them to
reuse the casing for several product life cycles (i.e. retreading). At the end of their life, the tires
are returned to the manufacturer which is responsible to recover the materials and make them
circulate within the technical cycle.

Finally, establishing cost-effective product of service systems requires not only reverse material
logistics, but also an increasing collaboration between the various actors throughout the supply
chain. For instance, manufacturers need information from suppliers about the exact composition
of their intermediate products and the disassembly capabilities at recovery sties. To support
information exchange between companies, Braungart et al. (2006, pp. 1345–1346) suggest the
development and the implementation of an intelligent materials pooling. By maintaining
ownership of technical nutrient chemicals and materials, an intelligent materials pooling is a
materials bank which leases these substances to companies which in turn transform them into
products and sell performance to consumers. Such system enables a greater exchange of
information related to the materials between the different economic actors throughout the
supply chain.

• Use current solar income: Living organisms in nature thrive thanks to solar energy. With this
2nd principle, C2C design addresses the energy sources which are available on this planet. In
this regard, McDonough and Braungart (2002, p. 131) claim that there is enough energy

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 available through renewable sources powered by the sun (wind, kinetic, biomass, geothermal,
etc.) to supply energy for the industrial processes and the living households. While eco-efficient
strategies are seeking to reduce the energy consumption of products and processes, eco-
effective strategies focus on the energy quality (and not the quantity) by supplying energy
through renewable sources.
• Celebrate diversity: Natural ecosystems and processes have evolved through diversity, which
allows them to become more resilient to shocks and stresses. In the C2C framework, diversity
includes not only bio-diversity, but also social and cultural diversity. Accordingly, C2C design
aims at providing tailored made solutions which integrate local socio-cultural habits and use
local available materials.

The concept of Cradle-to-Cradle has gained lots of interest among large businesses such Desso,
DSM and Nike which have implemented the C2C design principles in some of their products and
industrial processes. Furthermore, the C2C principles have been key contributors to the definition
of the concept of circular economy as advocated by Ellen MacArthur Foundation. As a matter of
fact, the distinction between the technical and biological nutrients is a key element of the butterfly
diagram of CE developed by EMF. In addition, the reliance on renewable energies and the
promotion of diversity are often cited as key principles of CE.

2.4 The Performance Economy

Walter Stahel, a Swiss architect and industrial analyst, firstly sketched the concept of a
Performance Economy in a research report3 called “The potential for substituting manpower for
energy”, which was commissioned by the European Commission in 1976 and co-authored with
Geneviève Reday. The study focused on car manufacturing and building construction and analyzed
the potential for substituting manpower for energy. The results showed that on a macro-economic
level, three quarters of energy is used in mining activities and basic material production, while one
quarter is used in manufacturing goods from basic material. Reversed proportions were found for
manpower. In that regard, product-life extension constitutes the best strategy to substitute
manpower for energy as these activities are the most labor intensive in comparison to

3
The report was published in 1981 under the title “Jobs for Tomorrow, the potential for substituting manpower for
energy” (Stahel and Reday-Mulvey (1981)).

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manufacturing ones. Accordingly, Stahel and Reday-Mulvey (1981) argued that an economy with
closed loops favoring reuse, repair and remanufacturing of goods over manufacturing of new
goods has positive impact in terms of job creation, economic competitiveness, resource savings
and waste prevention.

This report is recognized as the first to articulate the idea of a circular economy (Ellen MacArthur
Foundation (2017a)), which was further elaborated later in Stahel’s book “The Performance
Economy” (Stahel (2010)). In his book, Stahel presents the Performance Economy as a set of
strategies to overcome the shortcomings of the present industrial economy which is characterized
by a combination of continuously high resource consumption with related high waste volumes,
rising public debt often accompanied by persistent unemployment and slow economic growth.
According to Stahel (2010, p. 5), a Performance Economy calls for a shift in economic thinking
from ‘doing things right’ to ‘doing the right things’. ‘Doing things right’ refers to approaches
focusing on solving problems (e.g. waste generation, toxic substances) with the aim to reduce the
environmental impact. Such approaches have led to the development of end-of-pipe solutions (e.g.
clean-tech and recycling processes and eco-design solutions) which do not address necessarily the
source of the problems. While the technologies of the green economy have reduced the waste
generation through more efficient recycling, Stahel (2010, p. 6) criticized this approach for its lack
of systemic solutions which could provide a greater social potential of wealth and job creation. In
contrast, the Performance Economy focuses on doing the right things by favoring resources
sufficiency over resources efficiency and by promoting systems solutions over product and
manufacturing business models (Stahel (2010, p. 6)). By exploiting science and the opportunities
of an extended performance responsibility, the main goal of these two strategies is to uncouple
wealth creation from resource throughput while creating local jobs.

2.4.1 A closed-loop economy

While most businesses in the present industrial economy have been focusing on the management
of throughput flows4 over the last 200 years, moving towards a Performance Economy requires a

4
Most business models in the linear economy are product sales BM which seek for optimization of the production
process to reduce unit costs and for improvement of efficiency in the marketing channels to increase sales and turnover.
Accordingly, the performance of this industrial economy is measured at the macro-economic level by Gross Domestic
Product (GDP) and at the micro-economic level, by the value added to the flows up to the point of sales. In that regard,

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change of focus, shifting from throughput flow management to stock optimization and from value
added to value preservation and maintenance. This change of focus opens opportunities in three
loops of different characteristics and with different impacts geographically, which are shown
graphically in Figure 3 (Stahel and Clift (2016, p. 140)):

• Reuse Loop: it includes second-hand markets (from garage sales and flea markets to
eBay), commercial and private reuse of goods (e.g. refilling of beverage containers, resale
of clothes). These product remarketing activities are usually done locally.
• Loop 1- Remanufacturing: it includes product-life extension activities such as repair,
remanufacturing and upgrading which can be carried out locally or via regional service
centers.
• Loop 2 – Recycling: it includes product reprocessing activities which recovers secondary
materials to be used in the manufacturing of new products (e.g. recycling of paper and
plastics). These activities may be operated at a regional level of as part of a global supply
system.

As shown in Figure 3, some end-of-life products and materials may be used into lower
specification applications (downcycling) in other locations including energy recovery.

Stahel ((2010, p. 6)) criticized GDP because this flow metric ignores any wealth reduction in (natural) capital through,
for instance, pollution and loss of biodiversity.

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 Figure 3 - The main loops of a circular economy

Source: Stahel and Clift (2016, p. 141)

A Performance Economy is characterized by a number of principles which are described here

below (Stahel (2013, pp. 4–6)):

1) The smaller the loop (activity-wise and geographically) the more profitable and resource
efficient it is. Activity-wise means “don’t repair what is not broken, don’t remanufacture what
can be repaired, don’t recycle what can be remanufactured” and geographically, “the small
loops (reuse, repair and remanufacture) are best done locally or regionally” (Stahel (2013,
p. 4)). Two distinctively different types of resource efficiency govern the Performance
Economy: resource sufficiency in the loop 1 through reuse and service-life extension activities
and material efficiency in the loop 2 through recycling of materials embedded in products. As
recycling is often part of a global supply chain, favoring resource sufficiency over resource
efficiency enables to avoid packaging and transport costs while at the same time it creates

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 local jobs. Furthermore, “sufficiency solutions can mean turning a problem into an
opportunity or a virtuous loop, in the sense of finding solutions that do away with unwanted
environmental and social effects but without renouncing or reducing needs!” (Stahel (2010,
p. 50)) These solutions deliver the desired performance with fewer resources and for the same
amount of revenue, which increases the profits of the solution provider. Multiple examples of
sufficiency strategies are given by Stahel (2010, pp. 52–56): for instance, sheep can be used
to replace herbicide and mechanical mowers while waterless urinals do away with water and
water pipes.
2) Loops have no beginning and no end. “The concept of maintaining value, quality and
performance of goods through stock management replaces the concept of value added in the
linear economy.” (Stahel (2013, p. 5)) In a linear economy the responsibility for goods stops
at the point of sale whereas, in a Performance Economy, businesses focus on maintaining and
preserving the value of goods throughout its lifetime. Therefore, the notion of “value added”
up to the point of sale and “depreciation” after the point of sale are not anymore relevant in a
Performance economy.
3) The speed of the circular flows is crucial: the efficiency of managing stocks increases
with a decreasing flow speed. For example, material recycling of short-lived goods such as
beverage cans leads to fast circular flows and a rapid loss of the material stock (i.e. 50% of
the original material is recycled in the first cycle, 25% in the second cycle, 12.5% in the third
cycle, etc.). In such case, favoring reusable glass bottles can slow down the material flow
speed.
4) Continued ownership is cost-efficient: reuse, repair and remanufacture without a
change of ownership save double transaction costs. For example, the tire manufacturer
Michelin offers a pay-per-kilometer contract to truck fleets. This performance business model
enables to save transaction costs by internalizing the tire retreading and maintenance activities
and thus to increase their profits.
5) A performance economy needs functioning markets. In this aspect, the performance
economy does not differ from the industrial economy: it needs efficient market places where
supply and demand can meet.

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2.4.2 Selling performance instead of products
To move towards a Performance Economy, Stahel urges a shift from traditional manufacturing
business models to innovative ones which “integrate products and services into winning solutions
to create wealth and jobs with considerably less resource consumption, and provide economic
incentives to internalize the costs of risk and waste” (Stahel (2010, p. 2)). Examples of business
models selling performance are plenty: for instance, Michelin’s tire service (‘pay-per-kilometer’),
Rolls-Royce leasing turbines (‘power by the hour’), Philipps selling illumination (‘pay-per-lux’),
Xerox’ office equipment service (‘pay-per-copy’) and chemical management services (‘rent a
molecule’). These new business models, often referred to the Functional Service Economy, enable
to decouple turnover and profits from resource consumption and manufacturing volume. In
addition, in such BMs, ownership gives way to stewardship and consumers become users (Stahel
(2016, p. 435)).

Stahel argues that “selling goods as service, or performance, is the most profitable and resource-
efficient business model of the circular economy” (Stahel (2013, p. 11)). In a linear economy, the
responsibility for goods stops at the factory gate5 and waste is somebody else’s problem (and cost).
In other words, the manufacturer is not responsible for the maintenance of the products’ quality
throughout its lifespan (after extension of the warranty) and the end-consumer must take care of
the product at its end of life. In contrast, business models in a Performance Economy involve
retaining ownership of the product and taking responsibility of the product throughout its lifetime.
Accordingly, selling performance implies to internalize the costs of risk and of waste. As a
consequence, it provides an economic incentive to prevent any future liability after the point of
sale. Furthermore, as the price per service unit is contractually fixed, companies are incentivized
to minimize resource consumption, to prevent losses and waste during the manufacturing of
products as well as to design the products to last longer and to be easily manufacturable and
recyclable. Moreover, by retaining ownership of products and their embedded resources,
companies benefit from a high future resource security and resource price guarantee, which
provides a competitive cost advantage in times of rising resource prices (as forecasted).

5
Indeed, after the point of sale, many manufacturers offer a warranty for a limited period of time and limited to
manufacturing defects.

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In addition to the economic benefit and the improved material efficiency, Stahel emphasizes that
a Performance Economy fosters job creation in a regional economy. The reuse, repair and
remanufacturing activities favored in a Performance Economy (loop 1) are low-energy and labor
intensive while their economies of scale are limited in geographical and volume terms. In addition
to local job creation, “maintaining manufactured capital also means maintaining the crafts and
know-how that go with it” (Stahel (2013, p. 10)). In other words, such activities require workers
familiar with past technologies and thus offer jobs for ‘silver workers’.

In order to foster a generalization of performance business model, Stahel advocates the

implementation of sustainable taxation policy which taxes the consumption of non-renewable
resources instead of human labor (work) (Stahel (2013, p. 14)). As BMs selling performance are
labor-intensive, their operating costs are typically much higher than traditional manufacturing
business models. Therefore, a sustainable taxation could accelerate the shift to a Performance
Economy.

2.4.3 The link with a circular economy

While a closed-loop economy is often used as a synonym of a Performance Economy, Stahel refers
to the circular economy by using the term ‘lake economy’ (in opposition to a river which
symbolizes the continuous flow in a linear economy) (Stahel (2010, p. 189)). While a Performance
Economy and a circular economy both promote business models selling performance (i.e. goods
as services), Stahel states that they differs in terms of focus: a lake economy focuses on
maintaining the stock and a Performance Economy, on maximizing the value obtained from using
the stock (Stahel and Clift (2016, pp. 141–142). In a circular economy, businesses selling
performance operate as fleet managers and focus on managing their stock. While these companies
keep the ownership of the products, the value preservation of their products (e.g. repair and
remanufacture) may be done by independent service companies. In that regard, a Performance
Economy goes a step further: the manufacturer retains ownership of the products over their full
service-life and thus internalizes the costs of risk and waste, which provides incentives for waste
and loss prevention throughout the product lifecycle. (Stahel (2016, p. 436)).

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2.5 The Blue Economy
The Blue Economy is an open-source movement bringing together concrete case studies with the
aim to inspire entrepreneurs to change the rules of the game and to implement new innovative
business models, which respond to the basic needs of all with what is locally available. As the
most advocate of Blue Economy, Gunter Pauli (Belgian businessman and former6 CEO of Ecover)
promotes it as “the best and the cheapest solution for health and the environment where necessities
of life are free due to local system of production that works only with already existing resources”
(Pauli (2010, p. 14)). Innovative business model and competitiveness are two key characteristics
of the Blue Economy. Accordingly, in a Blue Economy, business models are key enablers for
bringing competitive products and services to the market to respond to basic needs while building
social and natural capital.

In cooperation with the United Nations, Pauli created in 1994 the ZERI Foundation7 (Zero
Emissions Research and Initiatives) which aims to promote the philosophy “using what you have”
(ZERI (2015)). In a project initially commissioned by ZERI in 2004, Pauli with the help of
financial experts, business strategists, policymakers and academics sharpened a list of 340 nature-
inspired technologies to 100 innovations. These innovations took “inspiration from the ability of
ecosystems to always evolve to higher levels of efficiency, to cascade nutrients and energy, to
leave nothing to waste, to utilize the abilities of all contributors, and to respond to the basic needs
of all” (Pauli (2010, xxviii)). While the economic philosophy was first introduced in 1994, Pauli’s
book8, by bringing 100 concrete case studies, has been a key instrument to popularize the Blue
Economy concept and to demonstrate that it is possible to generate more revenue, while generating
more jobs and still compete on the global market.

Pauli defines the Blue Economy as a new economic model which departs from our prevailing
economic model, the Red Economy, and from the emerging one, the Green Economy (Pauli
(2009)). The Red Economy refers to entrepreneurs and industries which generally focus on one

6
Pauli retired from all business when he learned that the success of the ecological factory relied on palm oil whose
production is responsible for large deforestation in Indonesia.
7
The think tank is today a global network of creative minds who are seeking sustainable solutions for our society
which are inspired by nature’s design principle.
8
Pauli’s book, The blue economy: 10 years, 100 innovations, 100 million jobs, was published in 2010 as a report to
the Club of Rome.

- 17 -
core business and one niche product. Their success relies on low production costs, which requires
economies of scale to achieve a minimum margin, monocultures to scale up, delocalization to
reduce labor costs and robotization of human labor to produce more and faster at a lower cost. This
approach depends extensively on the improper use of natural resources and generates negative
environmental and social impacts. Departing from the Red Economy, the Green Economy refers
to the emerging business models which builds on green technologies, renewable energies and bio-
materials. Pauli criticizes this approach for two main reasons: its lack of systemic approach and its
high costs. The Green Economy focuses only at one single advantage without necessarily looking
at the global picture and the potential harmful effects. To illustrate that, Pauli often cites the case
of biodegradable soaps which are produced from palm oil leading to the destruction of primary
rainforests in Indonesia (Change the Rules of the Game: Gunter Pauli at TEDxMaastricht, 2013
(2013)). Moreover, green technologies and bio-materials require extensive investments and public
subsidies, while bio- and eco-products are generally more expensive to consumers. For example,
investments in solar energy has been mainly dependent on subsidies which must be paid by tax
money. In contrast with the Red and the Green economies, the Blue Economy relies on innovative
business models which restore the environment, provide many jobs, enhance skills and produce
high quality and cheap products.

The concept of Blue Economy relies on 21 founding principles inspired by nature and ecosystems
(e.g. waste equals food) which are described on http://www.theblueeconomy.org/principles.html.
One core idea of the Blue Economy is the concept of cascading nutrients and energy which are
locally available. It is based on the principle of a waterfall (i.e. cascade). On the one hand, it
requires no power as it flows thanks to the gravity. On the other hand, it transports nutrients such
as minerals which feed microorganisms, which further feed plants which animals eat. Therefore,
all matter and energy cascades from one species to another. Building on this idea of cascading, the
Blue Economy fosters solutions being determined by their local environment and
physical/ecological characteristics and using resources available in cascading systems (Pauli
(2016)). Through this approach, the waste of one product becomes the input to create a new cash
flow, favoring the local economy. One example often cited by Pauli is the case of a coffee company
which can generate three revenue streams by thinking in cascade: income from coffee sales (core
business), from the mushrooms farmed on the coffee waste and from the good energy feed for

- 18 -
animals (which is made of the leftovers of the fungi production) (Change the Rules of the Game:
Gunter Pauli at TEDxMaastricht, 2013 (2013)).

2.6 Biomimicry
Biomimicry is defined as a new discipline which studies nature’s best ideas and then imitates the
most relevant inventions of nature for adapting them to provide innovative and sustainable
solutions for the society (The Biomimicry Institute (2017)). Through the development of nature-
inspired technologies, processes and industrial systems, the main goal of biomimicry is to strive
for sustainability. The term biomimicry has been popularized by Janine Benyus9 in her book
Biomimicry: Innovation inspired by Nature published in 1997. The core idea of this concept is that
nature has already solved many problems we are coping with (e.g. energy, food production, climate
control, benign chemistry, etc.). While human beings have been living on Earth for several
thousands of years, life on Earth dates back for 3.85 billion years. And since then, living organisms
have evolved well-adapted structures and materials through natural selection. Therefore,
biomimicry seeks to leverage the learnings from these billions of years of research and
development and it fosters nature-inspired designs in human engineering which are well-adapted
to life on Earth over the long term (Benyus (1997, pp. 2–3)).

Biomimicry relies on three key guiding principles (Biomimicry 3.8 (2016)):

• Nature as model: Biomimicry looks at nature’s form, processes and living ecosystems as
a source of inspiration to create innovative design solutions for our products and industrial
systems. The idea is to mimic nature at all scales when solving design problems (i.e. what
would nature do here?). For example, studying a leaf can help to develop a better solar cell.
Or at a larger scale, termite colonies can inspire the construction of buildings with natural
ventilation and solar heating.
• Nature as measure: Use ecological standards to evaluate the sustainability of innovations
and designs.

9
Janine Benyus is a biologist, innovation consultant, and co-founder of the Biomimicry Institute. The mission of the
Institute is to empower people to create nature-inspired solutions for a sustainable future. For example, the Institute
has launched a free online database of nature-inspired solutions, AskNature.org.

- 19 -
 • Nature as mentor: “It’s viewing nature not for what we can extract, harvest or
domesticate, but for what we can learn.” (Janine Benyus cited in Ellen MacArthur
Foundation (2014)) In her book, Benyus calls for a paradigm shift from learning about
nature to learning from nature as a way to solve human problems.

Furthermore, Benyus emphasizes the importance of system thinking when designing nature-
inspired solutions. Accordingly, “if you make a bioinspired fabric using green chemistry, but you
have workers weaving it in a sweatshop, loading it onto pollution-spewing trucks, and shipping it
long distances, you’ve missed the point.” (Biomimicry 3.8 (2016)) Therefore, biomimicry is not
only about mimicking a natural system, but it requires to understand how each product fits in and
what are the interactions between the elements of the ecosystem. By doing so, biomimicry aims at
applying successful design strategies found in nature in ways that foster a forest-like economy.

All processes in nature are low energy, material efficient and occur at ambient temperature. Using
biomimicry methodology can help companies to create innovative technologies, industrial
processes and systems, which are more energy and material efficient and less toxic, often while
saving companies money and helping to make them more resilient. Therefore, in addition to the
benefits of sustainability, nature-inspired solutions enable companies to do more with less,
increasing production and profits. For example, by leveraging the knowledge of the splashless
water entry of kingfishers and silent flight of owls, engineers managed to decrease the noise
generated by Shinkansen Bullet trains (high-speed trains in Japan). In addition, this nature-inspired
solution resulted in 15% reduction of electricity use while the train can travel 10% faster
(AskNature Team (2016)). However, mimicking nature has resulted in diverse implementations in
which the sustainability credentials could be questioned (e.g. biological military weapons). In that
regard, Marshall and Lozeva (2009, p. 7) have argued the necessity to distinguish biomimicry from
ecomimicry which refers to the “practices of mimicking nature that aim to be environmentally
sensitive and socially just”.

Finally, circular economy can be viewed as an application of biomimicry at an ecosystem level.

By definition, biomimicry aims at fostering innovation inspired by nature. And in nature there is
no waste! Actually, in natural ecosystems, the notion of waste does not exist because an organism’s
“waste” feeds other organism in such way that materials circulate within cycle without polluting
the ecosystem. Furthermore, like the concept of CE, biomimicry can be considered as a new of

- 20 -
thinking which radically changes the way we conduct business. It suggests a radically different
relationship with the environment as any industrial ecosystem should function like a forest.

3 Creating a common point of view on the concept of circular

economy

Despite of some divergences, the various schools of thought all have the same starting point: our
present industrial economic system is not sustainable and we have to re-establish a positive
interaction with the environment. Accordingly, our ecosystem including the economy and the
society should be considered as one among the other ecosystems and as part of the environment
(i.e. biosphere). In the face of these challenges, these schools of thought all called for solutions
inspired by nature with the goal to use more efficiently our resources while at the same time
reducing the negative impact on the environment. In that regard, the review of these schools of
thought suggests that different focuses can be noticed. While Performance Economy and Blue
Economy are mostly concentrating on the business model, others are looking more into
environmental impact of systems and products (Industrial Ecology and Cradle to Cradle) or
product design efforts (Biomimicry). Furthermore, one often cited solution for a more efficient
resource management is the performance business model (i.e. offering products as a service).
Moreover, all schools of thought advocate, to a certain extent, the importance of system thinking
when addressing the issues of our current linear economic model. Finally, the concept of circular
economy relates to every mentioned school of thought to a certain point and thus can be considered
as a holistic framework (as illustrated by Figure 4). Accordingly, Stahel stated: “as a generic
notion, the circular economy draws on several more specific approaches that gravitate around a set
of basic principles.” (Ellen MacArthur Foundation (2017a))

- 21 -
 Figure 4 – The influence of the various schools of thought on circular economy

Source: author

Since the late 1970s, practical applications of CE to modern economic systems and industrial
processes have gained momentum due to increasing environmental pressure and rising and volatile
resource prices. Despite the growing interest in CE as a development strategy to improve resource
efficiency and competitiveness, the term ‘circular economy’ has been applied inconsistently by
governments and companies (Preston (2012, p. 3)). For instance, China is, by far, the country
which has most fully embraced the implementation and development of circular economy concepts
(Murray et al. (2017, p. 374), Heshmati (2015, p. 6)). Knowing the serious environmental
challenges faced by the Chinese population of more than 1.4 billion people, it is not surprising to
see the Chinese government had incorporated the circular economy in the Outline of the 11th and
12th Five-Year Plans10 for National Economic and Social Development (Su et al. (2013, p. 218)).
Furthermore, China was the first country to enact specific legislation (i.e. Circular Economy

10
The Five-Year Plan (11th from 2006-2010, 12th from 2011-2015) represents a medium-term focus for government
policy in China and thus, it shows the Chinese’s government determination to continuously implement and further
develop CE.

- 22 -
Promotion Law11 in 2009) to promote CE nationwide. Due to this early adoption of CE as a
development strategy, CE literature is more established in China than in Europe (Ghisellini et al.
(2016, p. 14)).

While China has integrated CE in its national political strategy (top down approach), the transition
towards CE in Europe has been mainly championed by environmental organizations and NGOs
(bottom up approach) (Ghisellini et al. (2016, p. 17)). In Europe, the implementation of circular
economy primarily emerged through waste policies (e.g. Waste Disposal Act in Germany in the
early 1976 and EU Waste Directive 2008/98/EC) which have been promoting mainly the recycling
principle of a CE. As the concept of CE was explored by an increasing number of NGOs (e.g.
Ellen McArthur Foundation, Circle Economy and Institut de l'économie circulaire), the main focus
of CE has gradually been shifted from the narrow waste recycle to the efficiency-oriented control
within closed-loop flows of materials at all stages of the supply chain (production, distribution and
consumption). Accordingly, in December 2015, the European Commission adopted an ambitious
new Circular Economy Package, which involves actions to contribute to “closing the loop” of
products through greater recycling, re-use and repair (European Commission (2015)).

Finally, it is important to note that the approach to the CE in Asia and Europe at the firm level
takes different forms. On the one hand, China puts emphasis on ‘cleaner consumption and
production’ and the ‘3Rs’ principles (Reduce, Reuse and Recycle) are at the heart of its CE policy
(Preston (2012, p. 4)). Accordingly, “Chinese CE’s concept in many ways resonates with the
concept of industrial ecology which emphasizes the benefits of utilizing residual waste materials,
including energy, water, different by-products as well as information” (Su et al. (2013, p. 216)).
On the other hand, the European perspective focuses on a system design approach and draws
inspiration mainly from the Cradle-to-Cradle methodology developed by McDonough &
Braungart and the closed-loop economic model elaborated by Walter Stahel, which is reflected by
the well-known butterfly diagram of CE.

11
The Chinese CE Promotion Law defines CE as “a generic term for the reducing, reusing and recycling activities
conducted in the process of production, circulation and consumption”. (Circular Economy Promotion Law of the
People's Republic of China, 2009, art 2)

- 23 -
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