Circular Economy Rebound

TLDR

The circular economy, aimed at closing material loops to maximize utility, has gained momentum for its environmental appeal, yet recent research questions whether it truly reduces primary production, as proponents have largely ignored its economic dimensions. The authors argue that circular economy activities may increase overall production, offsetting benefits, and propose strategies to avoid such rebound. Circular economy rebound, analogous to energy‑efficiency rebound, arises when lower‑impact circular activities spur higher production due to limited substitution and price effects, thereby diminishing environmental gains. The study finds that circular economy rebound can offset environmental benefits, and that strategies to mitigate it are unlikely to appeal to for‑profit firms, warning that private incentives may trigger rebound and diminish gains.

Abstract

Summary The so‐called circular economy—the concept of closing material loops to preserve products, parts, and materials in the industrial system and extract their maximum utility—has recently started gaining momentum. The idea of substituting lower‐impact secondary production for environmentally intensive primary production gives the circular economy a strong intuitive environmental appeal. However, proponents of the circular economy have tended to look at the world purely as an engineering system and have overlooked the economic part of the circular economy . Recent research has started to question the core of the circular economy—namely, whether closing material and product loops does, in fact, prevent primary production. In this article, we argue that circular economy activities can increase overall production, which can partially or fully offset their benefits. Because there is a strong parallel in this respect to energy efficiency rebound, we have termed this effect “circular economy rebound.” Circular economy rebound occurs when circular economy activities, which have lower per‐unit‐production impacts, also cause increased levels of production, reducing their benefit. We describe the mechanisms that cause circular economy rebound, which include the limited ability of secondary products to substitute for primary products, and price effects. We then offer some potential strategies for avoiding circular economy rebound. However, these strategies are unlikely to be attractive to for‐profit firms, so we caution that simply encouraging private firms to find profitable opportunities in the circular economy is likely to cause rebound and lower or eliminate the potential environmental benefits.