Report on how to measure the macroeconomic impacts of the circular economy


WP2 Theoretical framework

The circular economy is an instrument to reduce primary resource use and environmental impacts of the economy. However, in current policy documents of the EU (EC 2015) it is also seen as a way to increase growth, employment, and international competitiveness. This may be one of the reasons why one would like to include the progress towards the circular economy in the communication between member states and the EC in the European Semester. The objective of this report is to assess ways to analyse the macro-economic and societal impacts of concrete circular economy opportunities.

In order to get a grasp on the background of this report, we investigate shortly the policy background and especially the role of the circular economy in the European Semester (section 2), which will be developed more thoroughly in another report (Deliverable 2.2). Then the first step in analysing the macro-effects of new circular opportunities is to list them in a consistent manner according to some criterion of profitability (section 3). Case studies that will be developed in work package 4 of the project are meant as examples of elements in such a list. After having made the list, the main question is why they are not part of the baseline development of the economy if they are so profitable as suggested. Different barriers are mentioned, where externalities are important ones. In order to guide the economy on a circular pathway, policies are needed, where we will see later on that these policies determine in many studies to a large extent the macro-effects of the circular economy.

After making clear where the circular economy scenario is about, available approaches on the macroeconomic and societal impacts of the circular economy are discussed by putting them in a general theoretical context. First, the main purpose of the circular economy is the reduction of primary resource use and negative environmental impacts. Because GDP growth and employment are important focuses of the European Semester, we start the impact assessment with GDP, employment and international trade effects (section 4 and 5). It is argued that the these effects are not automatically positive. However, the purpose of the circular economy is environmental, and if you include the societal benefits of these environmental effects in a broader welfare analysis, the circular economy may generate positive welfare effects that are not included in GDP, employment or competitiveness analysis (section 6).

Finally, some conclusions are drawn about the design of case studies that are meant to get an insight in the macro-effects of the circular economy.