Circular Economics: Capturing the Economics of Loop Closure Under Different Production Methodologies

Abstract

Circular economy has been heavily researched in many forms and ways in recent years. It has become clear both in legislation and in science that this system-wide change holds a key promise to address sustainability issues in our current society. So far, however, the academic debate has been dominantly on the possibility of closing the loop of various production processes and fleshing out the comprehension of the circular economy as an ideal economic system for the future. Yet, this has made the literature on the transition towards a circular economy predominantly descriptive and prescriptive in focus. For the transition to be more effective, the economics of the ideal to close production loops needs to be better understood, and hence an economic language needs to be developed if we are to study the many proposed initiatives of change in more critical way for the respective industry that are likely requested to change. In an attempt to accommodate such a language this article systematically develops an economic base for theory development in pursuance of studying the economics of closing production loops. In order to do so, we systematically develop a distinction between production methodologies, i.e. demand based production methods, like engineering construction, and supply-based production methods, like mass production, under which the loop closures are then modelled and analysed. We apply and test the proposed methodology to real-life cases for each of the production methods, an engineering construction case and a mass production case. The paper highlights specific building blocks under which loop closure can be modelled and analysed. It discusses and lays out the implications of circular economics and addresses further research to critically test the economics of circular initiatives in the varying production methods.