Linking circularity metrics at product and society level (LinCS) : Final report

The LinCS research project aimed to generate knowledge and understanding on the environmental and financial implications of circular products and circular economy at micro and macro level. It also sought to consider and review potential rebound effects. While circular economy is promoted as a promising solution that will decouple economic growth from environmental degradation, empirical evidence and academic research on the sustainability of circular economy and circular business models is in an embryonic form. Hence, the following research questions were posed: What factors/variables impact the environmental performance of circular products/circular business models? Under what circumstances/conditions are circular products/circular business models environmentally and economically preferred compared to linear ones? How can circular business models be improved in order to be sustainable? What are suitable indicators to monitor the environmental effects of CE at the micro and macro level? Which policies need to be introduced/altered that prevent/reduce the proliferation of unsustainable CE and support sustainable CE products? The research started with an extensive systematic literature review that mapped current knowledge and knowledge gaps on the environmental impact of circular products and circular business models. Despite the large interest of researchers on circular economy, the review only identified 54 papers that quantified the environmental impact of a circular versus linear product or system. Many of these papers focused on the environmental impact of the reuse or remanufacturing process but did not include key aspects of circular economy such as product design specific to the circular economy, or circular business models. Hence, there is a clear need for more research on the environmental impact. Based on the review, several product characteristics can be distilled that have a strong role in determining whether a product is suitable for the circular economy. In other words, these characteristics help to determine whether the increased circularity of a product is likely to lead to reduced environmental impact compared to the production of new products. These characteristics include 1) the extension of the product life, 2) the contribution of the manufacturing stage to the total life cycle environmental impact compared to other stages, 3) innovation frequency, 4) deterioration impacts during the life cycle including wear, 5) usage intensity, and 6) obsolescence. In particular, white goods were highlighted in the literature as being less suitable, due to their large share of environmental impacts in the use phase and because there has historically been a high degree of energy-efficiency innovation. For other groups of products, such as consumer electronics, the results are more ambiguous as it depends on the usage intensity and speed of innovation. Given the clear lack of studies assessing the environmental impact of circular products including the key aspects of circular product design and circular business models, ten case studies were conducted as part of the LinCS project in which the environmental, economic, and circularity performance of a product in a linear and circular business model were quantified. The majority of the case studies included circular product design and circular business models. The case studies show that the circular offer reduced the greenhouse gas impacts significantly in all but one case (where the rental business model led to increased emissions from transport for the customer and was highly dependent on rental location). Most cases resulted in a 50 to 60 % reduction. Based on the results we conclude that the recovery process or business model that enables life extension is usually less material- and energy-intensive. We further argue that with the expected transition towards renewable energy sources, the focus will likely shift away from greenhouse gas emissions to other environmental impacts. Material intensity will become more central, with the associated impacts of extraction and mining processes, as well as impacts on biodiversity. As a consequence, it is likely that the superior performance of circular products will become even more apparent in the future. The case studies further showed that profitability is an issue for some, but not all, manufacturers. In many cases, the costs of the circular model were estimated to be lower than in the linear case, mainly because less items need to be manufactured to fulfil the same level of demand, reducing manufacturing costs significantly. However, the revenue that can be generated in the circular model compared to the linear model is also lower, meaning that in some cases the profitability became lower. In many cases, the price customers pay for the circular product was set significantly lower than the linear product. More knowledge is needed to help companies set the correct price that can make their circular offer profitable and economical attractive. Macro-economic modelling was then performed to assess potential secondary effects and explore the benefit for Sweden when transitioning towards a circular economy. Multi-Regional Input Output (MRIO) modelling was used to understand the link between product level changes and macro level impacts. To model potential rebound effects, three alternative spending scenarios were modelled for the estimated financial savings from using more circular products. None of these resulted in higher impacts than the current situation, however, the impact of the scenarios was highly variable and almost as high in one case. This highlights a potential rebound effect depending on how savings are spent and the importance of considering (e.g. in policy and research) future levels of disposable income of consumers. The results also suggest that there is a limit to what can be achieved with circularity and that more traditional reductions in energy and improvements in resource efficiency are still required. For policy makers we note that, in order to accelerate the transition to circular economy, one aspect can be to utilise a societal functions framework to track, monitor and develop targeted policy instruments. We utilized and developed a societal functions framework consisting of: housing and infrastructure; nutrition, mobility, consumables, services, healthcare, and communication. Indicators can be developed to track each societal function and each system level (from product level, to product group and the societal function it provides) so that the impact to deliver each societal function within a country can be tracked and mitigation measures applied. Monitoring of this would allow increased knowledge and remediation action on the possible emergence of rebound effects, such as where a product has increased macro impacts (e.g. through increased consumption) despite product level efficiency improvements (or where one functions impact decreases but leads to an increase in another, e.g. increasing impact of online videos). Similarly, knowledge on the use phase, including statistics on the use and associated impact of repair facilities, spare parts, and second-hand reuse, can be improved. For researchers we note that more research is needed on how innovation is affected in the circular economy and what its role can be for sustainable circular products. We further note that knowledge is lacking on consumer behaviour in the circular economy, both in terms of how people behave and react towards circular product design (e.g. modularity and upgradability) and circular business models as well as the impact of circular products and business models on consumption levels. Many of these challenges align with similar issues highlighted in research on product service systems for which there are many parallels, but where further research is also required. Finally, many of the challenges and potential pitfalls of circular products are because they currently need to operate within a linear market and a system that is currently based on cheap fossil fuels, where the cost and impact of raw material extraction is undervalued and underestimated. As we have noted above, the overwhelming evidence is that circular products have enormous potential to reduce impacts, but their fostering requires careful management and monitoring to avoid potential rebound effects