The Macroeconomics of the Circular Economy Transition
This paper reviews the existing literature on modelling the macroeconomic consequences of the transition to a circular economy. It provides insights into the current state of the art on modelling policies to improve resource efficiency and the transition to a circular economy by examining 24 modelling-based assessments of a circular economy transition. Four key conclusions emerge from this literature. First, most models find that a transition to a more circular economy – with an associated reduction in resource extraction and waste generation – could have an insignificant or even positive impact on aggregate macroeconomic outcomes. Second, all models highlight the potential re-allocation effects – both between sectors and regions – that the introduction of circular economy enabling policies could have. Third, certain types of macroeconomic model are more appropriate for assessing the transition than others, notably due to their accounting of interactions between sectors and macroeconomic feedbacks. Fourth, of the assumptions that are fed into these models – those concerning future rates of productivity growth, the substitutability between different material types, and future consumption patterns – are key determinants of model outcomes.