What are the main challenges in implementing a circular economy?

The concept and principles of a circular economy

The circular economy is based on three principles, driven by design: 1) Eliminate waste and pollution, 2) Circulate products and materials (at their highest value), and 3) Regenerate nature[1]. In a circular economy, products and materials are kept in circulation through processes like maintenance, reuse, refurbishment, remanufacture, recycling, and composting. Natural resources are used at the optimum capacity, all at the rate of continuous recycling and better usage of resources through innovative economic business models[2]. While as a concept itself is defined in over 100 ways, a circular economy aims to deliver efficiency across all the verticals of an economy.

Transitioning to a circular economy: Main challenges

As of 2022, only 8.6% of the world economy is considered circular[3]. Transitioning to a truly global circular system would require tremendous effort and collaboration between sectors and countries across the world. Yet, there are major challenges to overcome:

Challenge 1: How to redesign value chains?

The production of most products we use involves a complex global supply chain. These supply chains have become more intricate due to globalization, spanning across continents and regions. Trade plays a crucial role in transitioning to a circular economy, but it also presents risks when disruptions occur, as seen during the COVID-19 pandemic. Implementing circular principles throughout the entire supply chain, regardless of location, is a significant challenge.

To promote circularity, potential actions include redefining Extended Producer Responsibility (EPR) to manage product waste, emphasizing design decisions to reduce resource extraction, collaborating with like-minded partners along the supply chain, optimizing value extraction from products at all life stages, and employing digitalization and intelligent robots to monitor resource use and enhance supply chain coordination.

Challenge 2: How to align sustainability and profitability with new business models?

Competitiveness is a concern not only among different companies but also within the same organization, where circular products may compete with successful linear ones. Firstly, the costs of transitioning, such as research and development, investments, and digital infrastructure, raise questions about who should bear these expenses. Second, competition with cheaper virgin materials makes recovery efforts less economically attractive. Creating new products that are not designed for repair is often cheaper than repairing existing ones. Third, there is a mismatch between the supply and demand for non-virgin raw materials, necessitating a “circular product policy framework” to level the playing field.

To align circular models with competitive business models, potential actions include integrating circular principles into innovation, focusing on long-term value creation, carefully managing intellectual property for remanufacturing, investing in disruptive technologies, and promoting circular procurement by asking suppliers for circular options.

Challenge 3: How to design effective policies?

Legislation plays a crucial role in advancing the transition to a circular economy. Examples of legislation include the Extended Producer Responsibility (EPR) schemes and bans on single-use plastics. However, there are still multiple challenges due to conflicting laws, unclear definitions, and a lack of global consensus. Import bans on circular products for protectionist reasons also hinder progress. Limited financial incentives and the failure to incorporate ecological damage costs in product prices are additional barriers. The EU Green Deal Circular Economy Action Plan seeks to address these issues.

To promote effective policies, actions include cross-sector collaborations involving public, private, and civil society initiatives, lobbying to remove legislative barriers, engaging the private sector and civil society in raising awareness, and offering government-led subsidies and tax incentives to encourage circular design, production, and supply chain efforts.


Challenge 4: How to induce a sustainable, circular behavior?

The role of individuals in transitioning to a circular economy is a topic of debate. Producers call for policymakers to create incentives for businesses, while consumers look to producers for waste-free products. Efforts are needed from all sides to change the current reality of products designed to fail and become outdated. The EU’s proposed eco-design resolution is an example of legislation to promote a circular economy.

Apart from policymakers and manufacturers, psychological factors driving consumption patterns also contribute to obstacles in promoting circular behavior. Research shows that human evolutionary tendencies, such as shortsightedness, exacerbate behavior causing environmental problems. Understanding these behavioral patterns is crucial in speeding up the transition to a circular economy.

To encourage circular behavior, potential actions include setting an example through one’s actions, working with rather than against human behavioral tendencies, emphasizing short-term personal benefits of circular practices, promoting awareness, and leveraging the influence of majority behavior to shape choices towards circular practices.

Bridging the circularity gap

Despite the numerous challenges, the principles underlying the circular economy offer significant potential. Firstly, it allows for the harmonization of environmental stewardship with business interests, asserting that value creation can occur while staying within strict planetary boundaries. Inspired by the principles of nature, proponents of the circular economy have managed to translate its advantages into tangible business opportunities, making it more appealing than the concept of sustainable development, which has often been criticized for not adequately balancing environmental and economic goals. Given its remaining weaknesses, there is a compelling case for both academic and practical exploration to understand how the ideas and principles of the circular economy can be effectively put into practice within current business operations.


[1] Ellen MacArthur Foundation, https://ellenmacarthurfoundation.org/ . Accessed on 26 September 2023.

[2] IDEAPOKE, https://www.ideapoke.com/growthleader/top-challenges-in-circular-economy. Accessed on 26 September 2023.

[3] Israel Public Policy Institute, https://www.ippi.org.il/transitioning-to-a-circular-economy-what-are-the-challenges/. Article published on 17 October 2022. Accessed on 26 September 2023.