Top 5 Barriers to implementing Circular Economy Principles

Top 5 Barriers to implementing Circular Economy Principles

A rapid transition from the current status quo of linear business models to circular approaches is required towards global sustainability and to reduce pressure on natural resources. The implementation of innovative circular design and production strategies will not only benefit society but also offer opportunities for companies by positively affecting economic growth, reducing negative impact on the environment, renewing the job market through innovation and helping improve the image and recognition linked to their core values and missions.

1. Adoption Barriers 

Due to the various reasons for rejecting circular business models, a company must anticipate and counteract them. There are internal and external factors affecting adaptation of a business model to the circular economy principles. Internal factors concern organizational capabilities to shift towards the circular economy business model. Such capabilities require intangible resources, like team motivation and organizational culture, knowledge and transition procedures. External factors consist of technological, political, sociocultural, and economic issues. Technological issues pertain to the possibilities to use adequate IT and data management technologies to support material tracking and other specific technologies e.g., recycling, monitoring legislation and political incentives. Another two groups of factors concern sociocultural issues, like customer habits and public opinion, and economic forces like predictable demand for future products or previous difficulties of business entities in adoption of Circular Economy principles

2. Lack of Technology 

Inhibiting technological factors for a Circular Economy adoption is the lack of IT systems for measuring and monitoring progress. Although specific software for detecting waste may exist, it appears not to have spread to all businesses or not been used due to the lack of waste stream data. IT systems are also necessary for the shift from a physical-goods dependent economy to a service economy and less resource-intensive immaterial satisfiers of human needs. Technological challenges firstly relate to existing linear systems that are supported by current technology. IT and data maintenance are important in the Circular Economy, because they enable companies to keep track of material and component data. However, this is still difficult and practices do not fully support that kind of use of data.

3. Institutional and Regulatory barriers

The institutional and regulatory barriers include inconsistent policy-messages and poor institutional infrastructure. Since many supply-chains are highly internationally integrated, the consistency of policies between countries is crucial for Circular Economy adoption in large firms, heterogeneity in policies between countries is a main hindrance. Stimulating use of energy-efficient appliances may also be inconsistent with a CE, since existing products are replaced earlier, sometimes not compensating for the saved energy.

4. Market and Economic barriers

Market barriers are classified as obstacles to a Circular E adoption due to non-existent or ill-functioning of markets and economic barriers as financial arguments for why a Circular Economy is not adopted. The most frequently mentioned economic arguments include difficulties for funding Circular Economy business models, high up-front investment costs and low virgin material prices.

The argument concerning a lack of market is twofold. First, the market mechanism for recovery is not in place which is particularly evident in the market for recycled goods, which fails due to a combination of factors including quality standards, perceptions of quality, supply uncertainties and lack of economic incentives. Furthermore, externalities are not internalized through taxes or economic incentives 

One reason for low perceived benefits is low virgin material prices. The lower perceived prices of raw materials are due to lock-in-effects into current linear infrastructure. Another explanation is the perceived quality of recycled materials making the price-performance ratio insufficiently beneficial to switch to Circular Economy operations. Furthermore, the supply of virgin materials adapts more easily to price changes than the supply of recycled material since new mines can start material price rises. Recycled materials are dependent on previous consumption patterns and have therefore an inelastic supply. Thus, the price volatility of recycled materials is larger which creates uncertainty. The uncertainty might lead to a decreasing willingness to invest in recycled material markets, and the substitution to recycled material markets stays low.

Lastly, the high up-front investment of any major shift in a society requires switching costs and these costs can take many different forms. Reversing the supply-chain, renegotiating contracts, adapting technology to suit new inputs or high development costs for new product design are just some examples. Another example is high research and development costs for making better use of recycled plastics.

5. Social and Cultural Barriers 

Three main categories of cultural barriers to Circular Economy adoption are resistant company culture, lack of consumer awareness and weak cooperation throughout the supply-chain. The Circular Economy resistant company culture plays out on three levels: resistance from managers, Circular Economy initiatives in isolation from main operations and low engagement in management strategies. 

Top and mid-management resisted initiatives in a Circular Economy direction as change may not be in line with their incentive schemes whilst Circular economy initiatives may be happening within a larger firm, all divisions are not aware of the changes being made. Some companies report that a Circular Economy  is not a part of their current innovation strategy and they do not have any measurable goals related to a Circular Economy, indicating low strategic engagement in many firms.

Circular Economy was a low priority in consumers’ decision process and many reported lacking awareness both about the meaning of the concept and about the circularity of their purchased goods. Cooperation across the supply-chain is poor as Circular Economy measures are viewed as intrusive on business models, not economically beneficial and hampering the competitive nature throughout the supply-chain. Confidentiality about processes and volumes in production hampers industrial symbiosis and exchange of by-products.

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