United Nations Economist Network

NEW ECONOMICS FOR SUSTAINABLE DEVELOPMENT

CIRCULAR ECONOMY
an alternative is based on the sustainable management
INTRODUCTION
of natural resources, the closing of material loops, the
At the macroeconomic level, a circular economy preservation of natural capital, and circular consumption
and production behaviours in the economy.
implies the decoupling of economic growth
Another definition from The Ellen MacArthur Foundation
from the use of natural resources and inputs.
proposes three key aspects: the elimination of waste
Ideally, the rate of resource extraction ought to and pollution, keeping products and material in use, and
remain below the rate of resource consumption, regenerating natural systems. Emphasis is made on
and the rate of waste production ought to the systemic character of this approach to economic
remain below the environment’s ability to development which can benefit businesses, society
and the environment while decoupling growth from the
absorb and transform the waste. A circular
consumption of finite resources.
economy can also be seen as a regenerative While the concept of the circular economy is inspired
system in which resource input and waste, by the physical features of a closed material circulation
emissions, and energy leakages are minimized system, the economic aspects remain critical for policy
through long-lasting design, maintenance, operationalization. Kircherr et al. (2017) note that current
definitions of the circular economy have gaps in relation to
repair, reuse, sharing, remanufacturing,
the system’s perspective, business models and consumer
refurbishing, and recycling activities. behaviour. Closing material loops is not sufficient, as it
depends on its effect on effective consumer demand. Real
Global economic consumption and production does not progress takes place when circular initiatives (such as
exist within a vacuum but relies on resource stocks and the use of secondary materials) displace linear ones, not
flows in our Earth System, acting as a limit to growth1. By when they coexist. Practical applications and regulatory
managing stocks and flows appropriately, and helping to frameworks for the circular economy need to ensure that
preserve, restore and develop environmental and natural producer and consumer behaviours support circularity at
capital, a circular economy contributes to a steady system the macro and micro levels3.
state, minimizing the risks from resource depletion2.
MACROECONOMIC RELEVANCE OF
While there is not yet an internationally agreed
A CIRCULAR ECONOMY
definition of a circular economy, the description of the
United Nations Environmental Assembly (UNEP/EA.4/ The circular economy is based in the reduction of waste
(e.g., goods with negative value), which can take the form
Res.1) provides a shared understanding of some of its
of physical waste such as technical materials (construction,
basic principles. A circular economy is presented as “one
metals, plastics), organic (agriculture residues), or
of the current sustainable economic models, in which
informational waste (e.g., absence of or imperfect
products and materials are designed in such a way that
information leading to a mismatch between supply and
they can be reused, remanufactured, recycled or recovered demand). The later refers to the opportunities missed due
(4-R) and thus maintained in the economy for as long as to lack of communication, awareness, or tools for society to
possible, along with the resources of which they are made, tap into idle capacities, such as unused vehicle seats, empty
and the generation of waste, especially hazardous waste, rooms, underused equipment (which another company may
is avoided or minimized, and greenhouse gas emissions need) - triggering unnecessary production, higher costs, and
are prevented or reduced”. The definition highlights the environmental impacts due to the limited information on
4-R framework for making the circular economy possible capacities already available.
through more resource efficient processes, with life The implementation of the circular economy concept
cycle considerations, and the prevention of programmed is likely to have important macro effects in the medium
obsolescence. A circular economy thus provides an term. Its gradual adoption will produce structural change
alternative to the “take-make-waste” linear model. Such – in investment, employment, capital depreciation and

CIRCULAR ECONOMY 1
sectoral growth – as attention shifts towards end-of- sustainability of production and investment structures;
life resource management, design-for-durability and and iii) the scale and growth in economic activities
services playing a larger role in the economy. The involved (especially of “essential consumption”). The
circular economy is also likely to bring production and SDG framework, in particular SDG 12, supports the
consumption sites closer to each other, as material loops incorporation of the social value of economic activities
are more easily managed on a national and regional into policy and planning.
basis. As in many industrial areas and manufactures, Developing recyclable and renewable resource
inputs are predominantly imported. A circular economy approaches requires socializing the circular economy
can contribute to lower input-based imports towards concept through initial education processes and
greater regionalization of supply chains. subsequent civil actions. This may lead to results across
Policies supporting a circular economy can change the entire value chain and sectors — a social responsibility
relative prices between imported and recycled inputs to by policymakers, producers and consumers.
promote these new circular economy industrial segments Such public, private, and community-type partnerships
until scale economies are achieved. Considering a circular can help drive the demand for circular solutions. They require
economy is strategic in terms of sustainability, these efforts systemic change, new practices and collaboration across
should be economically profitable in the long term. both value chains and with policymakers. It also requires
Many countries promote segments of production such increasing the role of local entrepreneurs with the aim to
as agriculture or energy on a temporary basis until these are reduce reliance on open ended material usage cycles.
competitive. The same principle should apply to a circular While the concept of the circular economy is inspired
economy and within a context of provision of incentives by the physical features of a closed material circulation
(taxes, investment promotion policies, financing, technical system, the economic aspects remain critical for policy
assistance), these new areas should attract fresh capital and operationalization. Closing the material loops is not
expand growth. When these circular economy investments sufficient as there are potential rebound effects and this
incorporate resource-saving technology, there is another should developed with impacts on demand and supply
impact in terms of productivity, favouring macroeconomic chains in mind. For instance, reducing environmental
growth potential. pressures through the substitution of primary finite raw
Taxes can play an important signal to ensure market materials with more sustainable alternatives in supply
transformation. Taxes on carbon, landfill and other similar chains while maintaining the economic demand for the
actions, can contribute to a more circular economy and product or service Real progress takes place when circular
collect additional fiscal revenue in line with the polluter initiatives (such as the use of secondary materials)
pays principle. At municipal levels this can contribute to displace linear ones, not when they just coexist.
fund further investments. Increased import tariffs for inputs
SYNERGIES BETWEEN A CIRCULAR ECONOMY
with potential substitution can also contribute, at least
AND OTHER NESD CONCEPTS
temporarily, to higher fiscal revenue.
The Circular Economy concept has two kinds of synergies
In terms of sectoral analysis, circular economy
with the other NESD concepts: complementing and
developments should also contribute to new activities in
intersecting (see Table 1). Complementing synergies
the provision of services, for collecting and processing of
between NESD concepts may develop positive feedback
materials, and in services linked to repair and reconditioning.
loops, while intersecting synergies may improve efficiency by
These usually are sectors intensive in labour, thus contributing
merging with each other.
to employment growth. That can also bring additional benefits
in the form of efficiency-enhancing formalization of material The synergies with the blue economy, green economy,
recovery activities, which often happen informally and under yellow/attention economy and frugal/innovation economy
inadequate working conditions. More employment and have complementing and intersecting characteristics. For
income should contribute to consumption, which in turn can example, the circular economy and the yellow/attention
boost aggregate demand and output, especially for services. economy rely on the use of digital technologies for economic
transformation (convergent), yet the circular economy focuses
THE SOCIAL VALUE OF THE CIRCULAR ECONOMY on the use of resource-efficient technologies, while the yellow/
The concept of a circular economy enables the rethinking attention economy appeals to the capacities of social media
of the production and consumption nexus along non-linear technologies (complementing). More specifically, the circular
and integrated lines of thought – and along normative economy concept can contribute to the progress of the other
sustainable production and consumption trajectories NESD concepts as shown in the next table with synergies that
that encompass i) social responsibility and action; ii) the complement or intersect with other concepts.

2 CIRCULAR ECONOMY
Table 1. How a Circular Economy can complement and intersect with other NESD concepts.

NESD Concepts Key contributions Complementary Intersecting

Reduction of dispersion of pollutants to

Blue Economy waterways and oceans. x x

Less carbon intensity through higher reuse

Green Economy and recovery of secondary materials. x x
Design-thinking for resource-efficient
Orange/Creative
production and processes, and use of x
Economy resource-efficient digital technologies.

Valuing the innovation and productive capac-

Purple/Care Economy ities of labour and improved living conditions x
(environmental, health);

Opportunity for using human innovation

capacities in recycling, recovery and repair
Social & Solidarity
activities, including solidarity economy x x
Economy models conducive to upgrade working
conditions from informal to formal sectors.

Norms setting to shift from goods-owner-

Yellow/Attention ship to delivery-as-a-service models, highly
x x
Economy driven by digital infrastructure and sustain-
able consumption behaviour.
Reduction of inputs and natural resources;
higher traditional/natural material usage;
Frugal/Innovation and emphasis on product and systems de-
x x
Economy sign to minimize waste. A CE also improves
efficiency by aggregating resources through
asset sharing business models.
Source: UNEN

SYNERGIES AND TRADE-OFFS OF A CIRCULAR ECONOMY economic growth from environmental degradation…” (see
WITH THE SDGS Table 2 on the next page).
The circular economy relies on resource efficiency and Broadly, taking SDG 8, target 4, and SDG 12 as proxies
sustainable consumption and production, which are central for a circular economy, a network of relevant synergies and
concepts to achieve sustainable development. Resource trade-offs with most SDGs and respective targets can be
efficiency refers to the improved use of resources in production identified (see Table 2).
and consumption processes, while reducing externalities in
the input to output process. Sustainable consumption and BARRIERS AND POLICY OPPORTUNITIES TO THE
production refer to “the use of services and related products, DEVELOPMENT OF A CIRCULAR ECONOMY
which respond to basic needs and bring a better quality of There are multiple factors that prevent faster progress
life while minimizing the use of natural resources and toxic towards more economic circularity. Prices are often not
materials as well as the emissions of waste and pollutants reflective of all environmental costs and may thus not be
over the life cycle of the service or product so as not to sufficient to drive fundamental change. Subsidies may create
jeopardize the needs of future generations”4. incentives for the overuse of natural resources, undermining
Key goals such as SDG 12 on “Ensuring Sustainable recycling options, and making linear production more
Consumption and Production patterns” are particularly attractive e.g., fossil fuel subsidies. Coordination failures
relevant to a circular economy, as the targets rely on may prevent the adoption of solutions across supply lines,
recirculating what was previously seen as waste back into including in the international context.
the economic space, via closed loop processes which A fundamental policy challenge is how to correct
reduce negative externalities. these barriers and, more broadly, put in place policies and
A circular economy also relies on achieving goals such regulations that support the development of a circular
as SDG 8, especially target 8.4 which aims to “Improve economy and create opportunities for the business
progressively, through 2030, global resource efficiency in sector to engage in this transition. As the world moves
consumption and production and endeavour to decouple towards circular economy patterns, countries should map

CIRCULAR ECONOMY 3
Table 2. Synergies between Circular Economy and the Sustainable Development Goals.

LINKS WITH CIRCULAR ECONOMY

SDGs
SDG 1 Target 1.5 (build resilience to shocks and disasters)

Target 2.3 (double the agricultural productivity and incomes of small-scale food producers)
Targets 2.1 (end hunger and ensure access by all people to safe, nutritious and sufficient food), 2.2 (end all forms of
malnutrition and address the nutritional needs of adolescent girls, pregnant and lactating women and older persons),
SDG 2 2.4 (ensure sustainable food production systems, resilient agricultural practices, strengthen climate adaptation and
improve land quality), 2.a (international cooperation for rural infrastructure, research & technology) and 2.b (correct
and prevent trade restrictions and distortions in world agricultural markets).

SDG 3 Target 3.9 (reduce air, soil and water pollution).

SDG 4 Target 4.7 (foster education and skills for sustainable lifestyles, gender equality and culture).

Targets 5 (ensure women’s full and effective participation and equal opportunities for leadership at all levels of deci-
SDG 5 sion-making in political, economic and public life) and 5.b (enhance the use of ICTs to promote women’s empowerment).

SDG 6 Targets 6.3 (improve water quality) and 6.4 (water-use efficiency).

Target 7.1 (ensure universal access to affordable, reliable and modern energy services)
SDG 7 Targets 7.2 (increase the use of renewable energy) and 7.3 (double global rate of improving energy efficiency).

Targets 8.1 (sustain per-capita economic growth at 7% for LDCs), 8.2 (achieve higher levels of economic productivity),
and 8.3 (support productive activities).
SDG 8 Targets 8.4 (global resource efficiency in consumption/production and decoupling economic growth from environ-
mental degradation), 8.5 (productive employment and decent work for all, including for young people and persons
with disabilities, and equal pay for work of equal value).

SDG 9 Target 9.4 (increase resource-use efficiency and resilient industrial processes).

Targets 11.6 (improve cities’ air quality and waste management), 11.b (increase the number of cities implementing
integrated plans for inclusion, resource efficiency, mitigation and adaptation to climate change) and 11.c (support
SDG 11 LDCs, including through financial and technical assistance, in building sustainable and resilient buildings utilizing
local materials).

Targets 12.2 (achieve sustainable management and efficient use of natural resources), 12.3 (halve per cap global
food waste and reduce food losses), 12.4 (achieve sound management of chemicals and waste through the life cycle),
12.5 (substantially reduce waste generation through prevention, reduction, recycling and reuse), 12.7 (promote public
SDG 12 procurement practices that are sustainable), 12.8 (ensure people have relevant information and awareness for sus-
tainable development and lifestyles in harmony with nature) and 12.c (rationalize inefficient fossil-fuel subsidies that
encourage wasteful consumption).

Targets 13.1 (strengthen resilience to climate hazards and natural disasters) and 13.2 (integrate climate change mea-
SDG 13
sures into national policies).

Targets 14.1 (prevent and reduce marine pollution of all kinds), 14.2 (sustainably manage and protect marine and
SDG 14 coastal ecosystems) and 14.c (enhance conservation and sustainable use of oceans and their resources).

Targets 15.1 (ensure conservation, restoration and sustainable use of freshwater), 15.4 (ensure the conservation of
SDG 15 mountain ecosystems, including their biodiversity) and 15.9 (integrate ecosystem and biodiversity values into national
and local planning).

Targets 16.3 (promote the rule of law at the national and international levels and ensure equal access to justice for all), 16.5
(reduce corruption and bribery in all their forms), 16.6 (develop effective, accountable and transparent institutions), 16.7
SDG 16 (ensure responsive, inclusive, participatory and representative decision-making), 16.8 (strengthening the participation
of developing countries in the institutions of global governance), 16.10 (ensure public access to information and protect.

Targets 17.1 (strengthen domestic resource mobilization through international support to developing countries), 17.7
(promote development, transfer, and diffusion of environmentally sound technologies to developing countries), 17.13
SDG 17 (enhance global macroeconomic stability, mainly through policy coordination and policy coherence), and 17.19 (develop
measurements of progress on sustainable development to complement GDP, and support statistical capacity-building in
developing countries).

Source: UNEN

4 CIRCULAR ECONOMY
the potential barriers and opportunities to limit adverse reducing imports. Commonly, economies stand to gain
effects on demand, trade, prices, while moving ahead from efficiency, accelerate innovation, and reduce environmental
dependencies on raw materials. Two outstanding barriers externalities by adopting circularity.
and potential opportunities can be identified: PUBLIC INVESTMENT AS A TOOL FOR SOCIETAL
A In the short run, importers of linear inputs, TRANSFORMATION DRIVEN BY A CIRCULAR ECONOMY.
companies with established linear production
processes and those affected by adverse Public investment strategies can provide the overall public
changes in relative prices could reject new governance framework to steer the economy towards
circular economy policies. Thus, these should
circularity. They can aim for short and long-term targets
be responded with immediate incentives
and reallocation of opportunities. that set the agenda for a whole of government and whole
of society transformation, with the financial commitment to
B Several developing countries that rely on enable an inclusive transition. These overarching strategies
commodity intensive growth models dependent on
can provide a unifying framework including tax incentives,
exports of linear raw materials such as agricultural
commodities, minerals, and other primary goods. regulation for accelerated depreciation for new investments
These economies should capture more value by (machinery and technology for CE processes), and
localizing secondary and tertiary stages of the value infrastructure investments for circular economy clusters.
chain with a circular approach in mind. Further, the
impact on employment growth, considering new or In 2020, the Republic of Korea announced its New Deal
stronger segments for repair and reuse of products, to enable a sustainable, resilient and inclusive recovery
can support an integrated strategy across sectors. from the COVID-19 pandemic. It included a commitment
of US$144 billion and the creation of 1,901,000 jobs by
REVIEW OF POLICY TOOLS AND INSTRUMENTS FOR
20255.The New Deal also includes a “Green New Deal” that
A CIRCULAR ECONOMY
embeds circularity aspects on renewable energy, green
Several public policy instruments can be used to implement infrastructure and industrial sector initiatives. The Ministry
a circular economy model. The section highlights examples of Environment of the Republic of Korea announced
of such instruments, including cases of policy progress at a plan to foster hydrothermal energy as the flagship
the national level and through international cooperation. project of the Green New Deal in June 2020. The plan
DOMESTIC POLICIES introduces a pilot project to build Gangwon Hydrothermal
Energy Convergence Cluster in Chungcheong, Gangwon
Countries worldwide are pursuing national policies that
Province by 2027 by utilizing the Soyang Dam with a
explicitly seek greater circularity and the sustainable use
more circular approach to resource efficiency. This pilot
of natural resources. The domestic policy toolkit includes
project aims to increase energy efficiency by aggregating
regulatory and market-based instruments, public spending
on infrastructure, support to innovation and strengthening energy-intensive facilities such as data centers,
of legal frameworks. In some cases, there are national smart farms, enterprises, and residential complexes
policies spanning multiple sectors and stakeholders, around the Soyang Dam, while using hydrothermal energy
while others may focus on particular sectors such as from the dam water for cooling and heating6.
waste management, energy production or agriculture. In Israel, public procurement accounts for 10.24 per
Policies in developed and developing countries can also cent of gross domestic product, and the public sector is
differ, especially when developing countries rely on linear recognized as a key player in driving demand for more
resource extraction and exports of primary products, circularity. Recognizing the potential of this purchasing
and others may focus on domestic resource capture power, the Ministry of Environmental Protection has

DOMESTIC POLICY TOOLS INTERNATIONAL

National public investment & public procurement strategies

Market-based instruments (e.g. fiscal policy) Trade agreements

Public-private partnership instruments (e.g. PPPs for R&D or
International standards
investment)
International agreements on monitoring
Regulatory or legal instruments (e.g. EPR laws)
and evaluation indicators
Voluntary commitment measures (e.g. compacts or action plans)

CIRCULAR ECONOMY 5
worked closely with the Government Procurement and generated by the public sector, such as limited coverage
Logistics Division of the Ministry of Finance to promote guarantee funds. The private sector can also explore joint
procurement targets that support a switch to a low-carbon investments with domestic and foreign capital, taking
resource-efficient society. In 2012, the Government set advantage of incentives and favourable regulations
targets for green procurement for governmental ministries, frameworks designed by governments.
measured by the percentage of government tenders that had In specific clusters, public investment can target
environmental criteria. Those targets of 5 per cent by 2013, Small and Medium Enterprises (SMEs). These can include
12 per cent by the end of 2016, and 20 per cent by the end technical assistance, public guarantee funds to enhance
of 2020, were all achieved. credit for SMEs, and venture capital investments using public
agencies. In the case of Chile, the Production Development
MARKET-BASED INSTRUMENTS USING FISCAL POLICY
CAN BE POWERFUL INCENTIVES FOR CIRCULARITY Corporation (CORFO) is a Chilean governmental organization
founded in 1939 to promote economic growth through
In the transition to a circular economy, public investment
entrepreneurship and innovation and competitiveness. In
should be complemented by market-based instruments
2021, CORFO launched an initiative on the circular economy
such as taxes or subsidies to help guide the behaviour of
and sustainable consumption and production, through the
firms, consumers and the public sector, while generating
program “Transforma Economía Circular”. CORFO provides
revenue for direct action by governments7. These policies
can include tax deferrals, regulation for accelerated financing and technical assistance, among other services,
depreciation for new investments (machinery and and accelerate startups development towards a circular
technology for circular economy processes, temporary economy. The program focuses on the massification in
lower corporate income tax for those making these the use of Circular Economy Diagnosis tools at production
investments, and higher temporary import tariffs on inputs chains, and the initial target is to accelerate 200 innovations
that can be efficiently recycled and substituted by circular centred in Circular Economy developments with Chilean
inputs. The idea is to apply these policy instruments SMEs. Also, the program will promote Circular Economy
temporarily, shifting market behaviour, while avoiding clusters, with solutions in at least nine sectors and specific
permanent market distortions. zones of the country, identifying suppliers capable to scale
For years, environmental taxes have been used as up to their response to the demand for goods produced
instruments to correct market failures derived from locally and with low negative environmental impact10.
externalities that cause an inefficient allocation of APPLYING THE POLLUTER PAYS PRINCIPLE TO
resources. Yet, during recent years countries have also ENSURE MARKET TRANSFORMATIONS FOR
started thinking about circular economy fiscal policy A CIRCULAR ECONOMY
instruments. For example, Finland implemented a national
Legal frameworks provide strong command and control
road map towards a circular economy by identifying
signals to transform markets when well designed and
tax options and other economic instruments, together
implemented. The Extended Producer Responsibility (EPR)
with best practices to promote circular economy goals8. is a regulatory tool targeting the private sector and requiring
In Thailand, government policies provide an attractive manufacturers to finance recycling costs or the safe disposal
business climate for those looking to add value to raw of products in the end-of-life stage. The tool has been applied
materials or turn waste and plastic into green industries9. through legal frameworks to reduce negative externalities
PRIVATE SECTOR ENGAGEMENT from e-waste, plastic products and others. EPR may be viewed
as an application of the polluter pays principle extending
Public-Private Partnerships can help build engagement to
the manufacturers' responsibility, which can incentivise
jump start a circular economy. Together, both public and
more circular practices under the 4R framework to capture
private institutions can identify sectoral or cluster-based
resources for reuse10. EPR laws should be designed in
opportunities, develop short- to long-term growth agendas,
consultation with manufacturers to ensure incentives for
and propose policy options to facilitate coordinated
producers to design products that are easy to recycle.
investments. The private sector, through its institutions (e.g.,
associations, chambers, etc.) should advocate and propose An increasing number of countries are adopting EPR
public/private partnerships to governments, including at the laws at national and local level levels. Between 1991
municipal and local levels. Research and Dev10elopment and 2011, US states enacted more than 70 EPR laws11.
clusters can include both entrepreneurs and academic In Sweden, EPR is both a policy and law supported by a
sectors to ensure applied innovation. Finally, the private 1994 European Union Directive for a more circular waste
sector can contribute with financing within an integrated system. However, the driving force for the policy in Sweden
strategy of financial instruments, not just traditional credit, has been mostly economic because recycling resources
but also through investment funds using the instruments are more profitable than making new products from virgin

6 CIRCULAR ECONOMY
materials12. Such laws shift the waste management activities (e.g., reuse, repair, refurbishment, remanufacturing
cost from local governments to producers for packaging, and recycling), while eliminating restrictions and subsidies
newsprint, electronic products, batteries, tires, end-of-life that negatively affect the competitiveness of these activities
vehicles, pharmaceutical waste, stray radioactive products across borders16. Other areas include a revitalization of
and radioactive sources. Success factors for the policy environmental goods and services (EGS) negotiations,
include strong cooperation and trust between producers improved traceability and design standards of goods in
and municipalities, matching the supply and demand for e-commerce, trade facilitation and various other areas17.
circular or ‘cradle to cradle’ waste stream, and compliance Progress in transitioning towards the circular economy
from industry for full operational and financial responsibility can create further opportunities for trade, also in services
for collection, sorting and recycling. Developing countries sectors, such as traditional areas of waste management
such as Mexico, Bolivia, Namibia and Indonesia also have and recycling, as well as novel approaches that deliver high
EPR legislation in place, while others are developing them13. resource efficiency, such as product-as-a-service models18.
VOLUNTARY COMMITMENTS By tapping the comparative advantages and market scales
which are only possible through international trade, circular
Many regions and countries are shaping their commitment
offerings can become competitive, making possible the
to a circular economy through high-level action plans,
emergence of new business models harnessing the potential
strategies, compacts, and targets. These are adopting
both a ‘whole of government’ and ‘whole of society’ of circularity across borders.
approach. In Latin America, there are more than 60 At the same time, there are potential conflicts that need
strategies supporting a circular economy that focus on to be addressed, between furthering the advance of the
multi-stakeholder engagement14. circular economy and other important policy objectives. For
Peru, for example, has a Circular Economy Roadmap example, an emphasis on extending the life of products,
for Industry with the "Peruvian Agreement for a Circular including by facilitating the international trade of second-
Economy" signed in July 2021. This agreement is a hand products, may slow down the introduction of more
multisectoral initiative that is part of the State's proposal efficient low-carbon technologies19. Divergence in the
for a comprehensive intervention to promote the levels of responsibility imposed on producers of circularity
country's transition towards the new model of sustainable measures across countries may create a disadvantage to
production and consumption. It promotes the articulation those facing more stringent regulations, which may limit
between public sector, business associations, academia, progress in the absence of international agreements20.
and international cooperation. An interesting aspect of
GLOBAL COOPERATION ON CIRCULAR
the Peruvian Pact is that it was signed by 28 institutions, ECONOMY STANDARDS
both public and private, to act with a long-term
perspective. These organizations include the Ministries Overall, there is a need for cooperation to agree on common
of Environment, Production, Agrarian Development rules and standards for international circular value chains. This
and Irrigation, and Foreign Trade and Tourism, as well is particularly important because there are potential negative
as different business associations, academia, and social issues that need to be monitored, such as environmental
international organizations such as the United Nations or health risks21. Domestic initiatives in support of the circular
System (including all its agencies, funds and programs economy risk being constrained by the absence of international
working in the country) and the European Union. agreements that extend the acceptability of standards beyond
national borders in critical areas, such as recyclable content.
INTERNATIONAL POLICIES TO FACILITATE THE
DEVELOPMENT OF A CIRCULAR ECONOMY
International agreements on standards set quality
benchmarks for production, exports and circular value
GLOBAL TRADE AGREEMENTS CAN ENSURE A REGIONAL chains globally. Traceability and transparency of value
AND GLOBAL SHIFT TO A CIRCULAR ECONOMY chains can foster circularity in diverse ways, including
Closing material loops in a global circular economy requires by verifying compliance with circularity requirements,
a level of policy harmonization in every jurisdiction where identifying hotspots for waste and loss along the value
value is added – only then can material loops be made more chain, and helping to trace the use of harmful substances
circular at the international level. and other resources22. For example, standards on consumer
The interface between trade and the circular economy is information such as with product composition are central
a complex, but essential one15. It involves, for example, an to facilitate consumption, disposal and recyclability of
updating of the Harmonized System (HS) codes to give better products. The lack of agreed definitions of what non-
granularity for trade data on secondary materials; facilitation hazardous waste or secondary raw materials are, may impair
of trade-related services that are key circular economy trade and environmentally sound waste management.

CIRCULAR ECONOMY 7
 The International Organization for Standardization, ISO, than for individual ones. For example, the EU monitoring
created a technical committee, with experts from over 80 framework for the circular economy has 10 indicators
countries, to develop industry-based standards for circularity. across four dimensions: production and consumption, waste
Standards under development include ISO 59004, which will management, secondary raw materials, and competitiveness
offer a framework for implementing a circular economy; ISO and innovation.
59010, which will provide guidelines on business models and
KEY POLICY TAKEAWAYS
value chains, and ISO/TR 59031, a future technical report
that will include case studies and best practices. This suite > Policy innovation is needed to realize the CE’s potential to
of international standards, once finalized, will be adopted at enhance resource efficiency and protect natural resources.
the country level by the national member bodies of ISO, which > Circularity can yield value in both material and immaterial
areas of the economy. The services sector is perhaps the
is also expected to receive wide take up by industry, which is
most important enabler for closing material loops and
engaging in the development of the standards23. producing less material and pollution intensive markets.
GLOBAL COOPERATION ON METRICS FOR > Macroeconomic policies are important enablers, such as
EVIDENCE-BASED POLICYMAKING development planning, taxation reforms and Extended
Producer Responsibility rules.
What cannot be measured, cannot be regulated. A global > A global metric is required to comparatively assess country
circular economy requires data - and evidence based public by country progress towards a circular economy and this
governance informed by globally comparable metrics. A key can be achieved through greater multilateral cooperation
challenge is ensuring countries adopt comparable metrics and agreement, likely through a UN resolution on measuring
and data collection to inform policymaking as an iterative and advancing the circular economy.
> The social side of a circular economy can enhance the
process. Some metrics today focus on end-of-use cycling of
positive impact of supporting and formalizing material
materials that re-enter the economic system (e.g., Circularity
recovery operations, which are often informal and intertwined
Gap Report), while others are measuring national recycling with poverty and unhealthy work. At the same time, effective
rates. Yet, more work needs to be done. policy tools must be in place to ease the employment/social
A circular economy has multiple dimensions that are friction during the linear-to-circular transition.
difficult to capture with a single indicator. From a policy > Financing circularity requires an open dialogue among
angle, the relevant question is not only how to measure public, private and development finance representatives,
for sustainably de-risk circular economy investments.
circularity but what are the indicators that can be used to
> International trade plays a key role in advancing the circular
track progress. The choice of indicators would reflect specific economy at the international level. Work on multilateral
policy priorities associated to the shift to a more circular rules, standards and principles are essential to allow
economy. From a practical point of view, some indicators are circular markets and solutions to achieve scales and
more easily calculated for a group of countries (or the world) efficiencies fit for international competitiveness.

Table 3. National to global indicators for a circular economy.

Indicator type Metric description

Number Number of national policies and laws on the circular economy.
Value National budget dedicated to enabling a circular economy.
Number Number of national circular economy clusters implemented.
Percentage Sustainable Development Goal 12 targets — e.g. SDG 12.5 national recycling rate.
Number Number of business reporting engagement in circular economy clusters, resource capture or value chains.
LCA/Mass Material metabolism and material efficiency indicators.
Index Productive capacity (such as UNCTAD’s productive capacity index).
Number Number of decent jobs created through circular economy measures.
Number Number of standards adopted for the circular economy (such as circulareconomy earth policy mapping.
Trade and logistics flows related to key goods to enable circular economy transition
Value/Volume (e.g. energy, minerals, etc.)
Share of cycled materials as a proportion of the total material inputs into the global economy every
Percentage year (e.g. Circularity Gap Report).
Source: UNEN
Table 3 above summarises key indicators in use, while also consolidates suggestions on additional metrics based on national and global
initiatives to advance on a circular economy. It should be noted that relevant indicators can move in opposite directions, e.g., an improvement in
the circularity rate can be accompanied by an increase in the overall demand for resources if such improvement is insufficient to meet a growing
demand. To this end, a suggested global metric on cross-country comparisons for a circular economy could build on existing metrics.

8 CIRCULAR ECONOMY
Endnotes: economy - Policy alignment", OECD Trade and Environ-
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The views and opinions expressed in this policy brief
12
https://news.un.org/es/story/2021/03/1490082
are those of the authors and do not necessarily reflect the
13
See UNCTAD (2018) Circular Economy: The New Nor- opinions and policies of the United Nations.
mal? Policy Brief 61. Available at: https://unctad.org/
system/files/official-document/presspb2017d10_en.pdf The designations and terminology employed may not
14
Steinfatt, K. (2020), “Trade policies for a circular econ- conform to United Nations practice and do not imply the
omy: what can we learn from WTO experience?”, WTO expression of any opinion whatsoever on the part of
Staff Working Paper ERSD-2020-10. the Organization.
15
Yamaguchi, S. (2021), "International trade and circular All queries should be addressed to [email protected].

CIRCULAR ECONOMY 9