I was at the Base London sustainability event yesterday (http://www.basecities.com/london/the-event/programme), at which The Aldersgate Group launched its new "Resilience in the Round" report on the need for a circular economy: http://www.aldersgategroup.org.uk/reports.
At the conference there was some attempt to describe what this is and why we need it. Apparently a circular economy is where the value of resources is retained and not lost as those resources are transformed through different applications/uses throughout their lifecycle. But the value of a resource is not a static and invariate characteristic but changes according to how (and when and why) it is being used. When left out with the rubbish these materials have a negative value as waste managers must be paid to take them away. After being sorted/processed at cost, some residual value may be recovered. But this is not the same as retaining the value of the material throughout its lifecycle.
Where I really fell down though was on the justification for this new "paradigm". According to the report, we need to move to a circular economy due to scarcity and to higher resource costs. I however don't find the evidence for this particularly compelling.
Real input prices (according to the IMF's index for industrial inputs) have indeed doubled since 1980, which at first glance appears significant, and we are reminded that the commodity price savings of the 20th century have been eroded in recent years. But this should be taken in a context where real global GDP has increased by almost six times during the same period (1980-2010). This suggests that currently (i.e. in 2010) material costs as a proportion of output were actually less than 40% of what they were in 1980. So while the prices of material resources are close to all time highs in absolute terms, relative to other resources (in particular labour), they are actually not particularly high in historic terms.
This, to me, challenges the assumption that we should be worried about costs. We have just been through the biggest commodity boom in history and it is likely that this has incentivised improved resource efficiency in the economy. It has not however delivered the significant cultural and economic shift perceived as necessary by the proponents of a new circular economy. Given that commodity prices are now falling, it seems to me that in reality the costs of resources do not justify a significant shift in economic activity away from primary commodity extraction and usage.
This still leaves however the question of scarcity. Notwithstanding the fact that prices are an indicator of relative scarcity, perhaps there is a case for worrying about running out of stuff. But known reserves of commodities are at all times highs (in the case of oil: http://en.wikipedia.org/wiki/Oil_reserves#OPEC_countries) and commodity production is also at all time highs (in the case of copper: http://en.wikipedia.org/wiki/Copper#Production). So, on the face of it, it doesn't look as though we are running out of stuff. On the contrary, we have more stuff than ever, despite the demand for it.
Defra recently looked at this issue in its Resource Security Action Plan (http://www.defra.gov.uk/publications/2012/03/16/pb13719-resource-security-action-plan/). This explicitly stated that "supplies of most resources are not expected to run out". This is why the report focused on resource "security" rather than scarcity. This newly invented resource security problem essentially boils down to concerns about potentially unfriendly regimes having dominant market positions in certain commodities. Some might say this is a slightly static and short-termist view as it doesn't recognise the dynamic market response to resource supply issues, in terms of both finding new sources of supply (see e.g. Vietnamese and Japan working together now to open up new supplies of rare earth metals: http://www.theregister.co.uk/2012/06/18/japan_vietnam_rare_earth_minerals/) and also of finding substitutes to the use of particular materials.
The concept of a circular economy could be potentially interesting. But not in this guise. It seems like the latest fad for those who would like to see a return to local production, but aren't quite willing to shout explicitly for the protection of domestic industries. And when it focuses its attention on the pretend issues of scarcity and resource crunches, it fails to address more fundamental problems associated with a lack of domestic competitiveness: high costs, particularly for energy. When government policy is deliberately driving energy costs up, this seems a particularly glaring omission.
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