Moving from a linear economy to a circular economy

Russia’s recent invasion of Ukraine on 24 February has led to a further surge in energy and commodity prices. The price of a barrel of Brent crude oil has quickly gone above USD 100, the first time this has happened since 2014, reaching almost USD 150 at the start of the 10th week of the year. As for wheat, last Friday it reached an unprecedented EUR 393 per tonne on the European market Euronext, compared to EUR 284 per tonne in November 2021. [1]

The Russian invasion has led to fears of disruptions in the supply of raw materials and goods from the two countries in conflict. It reinforced a global inflationary surge, which was already being fuelled by factors such as pandemic-related supply chain disruptions, raw material shortages, high energy demand, lack of skilled labour and other geopolitical tensions. In Europe, the energy transition also contributed to a significant increase in the price of classic energy products. The Russian-Ukrainian conflict highlights the fragility of many European economies in particular, which remain largely dependent on imported resources. All of these cyclical, structural and political factors leave no doubt that the problems associated with high inflation will continue. Similarly, instead of looking forward to an economic recovery after two years of pandemic, we are faced with a war in Europe which, alongside the human tragedy, raises fears of ‘stagflation’ and recession at the macro-economic level.

In such a situation, imbalances between supply and demand in several markets and scarcity of resources are significant worrying developments.

It is clear that the economic model that is still the most popular at the global level, namely the linear model where resources are extracted, transformed, consumed and then end up as waste, is now obsolete. Not only does it no longer allow for dynamic growth rates in most economies (the global growth rate has barely exceeded 5.5% since the 1980s [2]), but its very functioning is threatened by the existence of a limited quantity of resources, the scarcity of which is increasingly apparent in the form of shortages (e.g. semi-conductors, copper, maize, skilled labour, etc.), combined with record global inflation rates. Driven by soaring energy prices and supply chain bottlenecks, the annual global inflation rate is approaching 8%, while the European Union’s inflation rate hit a 25-year high of 5.1% [3] in January, reconfirmed by Eurostat in late February. This rate is well above the 2% target set by the European Central Bank (ECB).

The conventional, linear economic model has helped most of the world’s economies to prosper. However, it has only worked because of the availability of cheap and abundant raw materials. Today, the circumstances are different as resources become scarce, while the impact of their exploitation on the climate, nature and the environment becomes increasingly negative. 

Following the example of the countries working to achieve the United Nation’s 17 sustainable development goals for 2030, Luxembourg has for several years now been working on a vast project to move from an extensive economy – whose prosperity is largely dependent on an increased need for production factors of all kinds such as human, natural or capital resources – to an economy characterised by more qualitative growth, capable of ‘meeting the needs of the present without compromising the capacity of future generations to meet their own needs’, i.e. a resilient model enabling a high standard of living to be maintained over the long term. 

Possible avenues to re-establish more sustainable growth have thus been researched. As a result, the circular economy, an emerging field in the 1970s, has received renewed interest in the last decade by virtue of its nature as a ‘continuous positive development cycle that preserves and develops natural capital, optimises resource efficiency and minimises systemic risks through the management of resource stocks and flows [and as] a system that remains efficient at any scale’.[4] The circular economy is therefore part of the sustainable development framework and is a promising successor to the linear model in addressing the challenges of the latter. To this end, it includes at the heart of its framework the principles of optimising resource consumption, eliminating the concept of waste through systematic reuse and mitigating environmental impact.

Not only does the practice of the circular economy help build more respectful and resource-conscious growth, but it can also act as an economic driver by generating new jobs, activities and products based on new business models and practices. The activities related to sustainable procurement, the markets for second-hand and refurbished products, the substitution of purchasing with rental services (‘product as a service’) and car-sharing are all concrete examples of activities that have recently developed significantly and that have their origins in the principles of the circular economy. In the European Union alone, for example, it is estimated that the implementation of this new economic model could lead to a gain in resource productivity of more than 30% by 2030 [5] and the creation of more than 4 million jobs. [6] This is a real opportunity to revitalise Luxembourg’s productivity, which was assessed by the latest report of the National Productivity Council as being high, but stagnating. The circular economy creates a real win-win situation, so it is not surprising that it is currently one of the key themes of the European Commission’s working programme. 

In the Grand Duchy, we are not left behind. According to the ‘Luxembourg as a knowledge capital and testing ground for the circular economy’ [7] study carried out by the EPEA international institute and based on the consultation of more than 50 stakeholders, the deployment of the principles related to the circular economy, applied to a variety of diverse sectors, has the potential to generate savings of EUR 300 million to 1 billion in raw materials per year. There is a strong national political will to establish the circular economy (cf. coalition agreement 2018-2023 that pursues resilience through more than twenty points related to the circular economy, implementing a dedicated strategy [8] aiming to make Luxembourg a pole of excellence in this field).

The health, economic and now political crises are undoubtedly disrupting the lives of households and businesses. They are driving up costs, reducing profitability and impacting the ability to invest in the digital and energy transitions.  In such an unprecedented context, capturing monetary, temporal and human resources in order to initiate a transition towards a more sustainable, but also radically different, business model is a major challenge. The monetary benefits (e.g. raw material savings, better resilience to price volatility, improved margins…) and non-monetary benefits (e.g. positive market differentiation, better competitiveness…) of the circular economy are numerous and proven. A quantitative study carried out in 2014 by the eco-design unit of ADEME (French Agency for Ecological Transition) reveals, for example, that the practice of eco-design (a circular economy approach that consists of integrating, from the design stage, the environmental impacts of a good or service throughout its life cycle) has been profitable for 96% of the companies that have implemented it. More specifically, 45% of these companies have seen their profits increase, 86% have seen an improvement in their image or reputation, and 41% have seen an increase in employee motivation or pride.

The circular economy also has the advantage in that it can be implemented in many different ways (e.g. sustainable sourcing, functionality economy, increasing shelf life…). There are many opportunities for a company to take advantage of this, whether by including circular principles in its production and management processes or by developing new business models based on them. Any organisation, regardless of its size, sector of activity, resources or specific characteristics, can thus choose the elements that are most suitable for starting out on its path to greater resilience.

The Chamber of Commerce works actively to support companies in the related processes. For example, it facilitates the participation of companies in international themed trade fairs (e.g. Pollutec), keeps an active regulatory and economic watch in the environmental sector via the publication of its opinions, its barometer of the economy (Baromètre de l’Economie, published in French every six months), working documents (e.g. Actualité & tendances No. 22 and No. 26 on the circular economy), and organises themed conferences. In order to be as close as possible to the situation on the ground, we have also set up a dedicated sustainable development working group, bringing together the various experts and players in the Luxembourg ecosystem to discuss ESG issues and the related regulatory agenda. This working group initiated the ‘Luxembourg sustainable business principles’ [9], which propose a structured support plan for integrating resilience into business processes.

The circular economy is available to everyone!

Its implementation is an opportunity for Luxembourg to recover from the consequences of the pandemic and – in the long run – to better protect itself from an inflationary, energy, raw material and supply crisis such as we are experiencing today.


[1]  https://www.lefigaro.fr/conjoncture/guerre-en-ukraine-l-envolee-du-cours-du-ble-inquiete-le-monde-20220306

[2] World Bank statistics

[3] Eurostat statistics

[4] Adapted from the Ellen McArthur Foundation’s definition that siginificantly contributed to making this a mainstream concept

[5] Institut national (françaInstitut National de l’Économie Circulaire (INEC)

[6] European Comission

[7] EPEA (Environmental Protection Encouragement Agency) study, ‘Luxembourg as a knowledge capital and testing ground for the circular economy’, December 2014

[8] https://gouvernement.lu/dam-assets/documents/actualites/2021/02-fevrier/08-strategie-economie-circulaire/20210208-Strategie-economie-circulaire-Luxembourg.pdf

[9] https://www.cc.lu/toute-linformation/publications/detail/luxembourg-sustainable-business-principles-our-common-2030-goal

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