Recent decades have seen an unprecedented growth in demand for natural resources and the materials derived from them. Around 80 billion tonnes of minerals, fossil fuels, and biomass were fed into the global economy in 2011, and this is only likely to increase with population growth and improved standards of living. OECD modelling indicates that resource use may more than double by 2060 under business as usual.

Natural resources, and the materials derived from them, represent the physical basis for the economic system. Recent decades have witnessed an unprecedented growth in demand for these resources. This has triggered interest from policymakers in transitioning to a more resource efficient and circular economy.

This chapter sets out the motivation for the development of this report. It notes the rapid growth of resource extraction, use and disposal that has taken place in recent years, and the adverse environmental impacts that are occurring as a result. Improved resource efficiency and a transition to a more circular economy are then highlighted as potential solutions to these issues: using natural resources relatively sparingly would allow economic growth to be decoupled from its less desirable environmental side-effects. The chapter concludes by identifying the more widespread adoption of circular business models as a concrete means of achieving decoupling.

This chapter focusses on circular business models, their key characteristics, and the main drivers for adoption. It begins by presenting a typology of the five headline circular business models that are discussed in this report: circular supply, resource recovery, product life extension, sharing, and product service system models. The key characteristics of each of these are then discussed, with a particular focus on the underlying business case. The chapter concludes with an overview of the higher level factors that could drive the adoption of circular business models in the longer term. Technological change and a range of emerging business risks are identified as being of particular importance.

This chapter moves from describing different circular business models to assessing their potential scalability. Each of the headline business models considered in this report is analysed in terms of, i) their current market share, and ii) their ability to significantly scale up. The former draws upon existing market data from a variety of sources, while the latter is based on a review of the literature relating to these business models. The chapter concludes by summarising the current market penetration of circular business models, and by identifying several fundamental barriers to their future adoption.

This chapter focuses on the environmental potential of circular business models. Drawing primarily on insights from the lifecycle assessment (LCA) literature, it assesses and compares the environmental footprint of goods and services produced via circular modes of production to those produced via more traditional means. Thus, recycled materials are compared to those made from virgin natural resources, remanufactured products are compared to new products, and the sharing or leasing of assets is compared to conventional ownership. While the environmental potential of circular business models is found to be broadly positive, the analysis also identifies several risks and unintended consequences that could result from their more widespread adoption.

This chapter offers a summary of the policy implications that emerge from this report. The discussion is intended to provide a set of high level policy principles rather than specific guidance for individual business models. Thus, the factors that serve to hinder the general adoption of circular business models are identified, and the set of policy approaches that could address them discussed. Developing more specific policy guidance would require more detailed analysis of a particular business model within individual sectors: this could be considered for future work.

Nico Spacecraft designs and builds furniture, cabinetry and interiors for the residential market. Drawing from their global experience, the owners seek their inspiration in quality, good design and environmental principles. Plywood is a primary building material, so they sought out a plywood product in harmony with their environmental ethic: Purebond® by Columbia Forest Products. Nico Spacecraft has found that the PureBond® plywood they now use in most of their projects satisfies their quality, design and environmental criteria. They also use reclaimed materials where they can. Through seeking out circular supplies for their small business, Nico Spacecraft has been able to successfully incorporate circular economy practices such as non-toxic materials, design for recycling and durability into their products.