The Economic Barriers to a Circular Economy

As the sustainability movement has gained steam, pressure is increasing on governments, corporations, and individuals to reduce waste and emissions. The circular economic model developed out of this pressure, and it encourages recycling and reusing existing materials for as long as possible to eliminate waste and regenerate nature. However, despite the data-backed reports from experts who recommend a transition to the circular model, there are several economic barriers to establishing a circular economy.


There Are Systemic Financial Barriers

Most investors are still working and thinking in terms of the linear economy. Their "take, make, dispose" mentality focuses on short-term profits, so they see a circular economy as a risky investment. Moreover, until prices account for social and environmental externalities, financial signals will be the primary deciding factors in economic decision making, not environmental or social equity concerns. 

Finally, it can be costly for businesses that want to get involved to set up demanufacturing and recycling infrastructures on-site. The alternative is incredibly complex partnerships across many industries. These partnerships are between established businesses and those that will rise out of increased demand for circular practices, and they will be expensive to facilitate. 


Government Regulations Stand in the Way

The laws and regulations for consumer protection are also economic barriers to a circular economy. Impediments abound in the food sector alone. For example, the government regulates expiration dates on food, most of which do not represent the point when the food becomes inedible. 

This regulation encourages the disposal of food that is not yet spoiled. In addition, packaging materials increase shelf-life but are themselves disposable plastic waste. Once government regulations change to incentivize green packaging, businesses will become more likely to use it.


There are Technological Limitations on Recycling

According to the Ellen MacArthur Foundation, only 2% of plastics are recycled into products of the same or greater value to the economy. Typically, plastic bottles or packaging is shredded and remade into lower-value products such as carpet fiber. This loss of value comes from the limitations of sorting and cleaning technology. As a result, only a tiny percentage is recycled into the same quality products. A fully circular economy requires technological innovation.

Paper coffee cups

Developing Nations Lack Critical Infrastructure

The World Economic Forum projects that by 2050 there could be more pieces of plastic in the ocean than fish. This dangerous trend is the consequence of poor waste management infrastructure in overpopulated and underdeveloped countries like Indonesia and the Philippines. Increasing waste collection initiatives and improving recycling facilities in developing nations could have an outsized effect on preserving the world's oceans and promoting circular practices.


Partnerships Are The Key To Progress

Although the barriers to a circular economy are substantial, they are not insurmountable. Education, outreach, and partnerships will be able to overcome any obstacles. If stakeholders in finance, government, and tech all play their part, they could increase the transition speed from our linear economy to a circular model.

Bag made of ecoplastic

Marketing Takeaways

  • To remove financial barriers, businesses should engage in outreach in their B2B and B2C communications, lowering the knowledge gap and encouraging people in all segments of society to get on board. Education is key!
  • Although government regulations are starting to lean green, the progress is slow. However, businesses can encourage progress by staying well ahead of government regs and lobbying with their local politicians on behalf of circular initiatives.
  • Technology and infrastructure are critical. However, conscientious businesses could start laying the groundwork for future cross-industry or international partnerships by starting pointed conversations about the financial benefits of innovation and infrastructure improvement.