What distribution of value and wealth in the circular economy? Comparison with the linear economy

Synthesis

Disclaimer: The content of this publication is based on the state of knowledge and the regulatory framework in force at the time of publication of the documents.

Background to the study

In response to the question posed by the RECORD association, "What is the distribution of wealth and value in the circular economy? Compared with the linear economy", an analysis of the documents and literature on the subject has helped to shed light on this question and to position it in the landscape of the circular economy in comparison with the linear economy. 
The circular economy is in fact a concept that has several definitions - more than 222 were listed in an article by Kirchnerr et al, all of which have some legitimacy. This proliferation of definitions has not made it easy for business leaders to grasp, and therefore to deploy. 

To answer the question posed, this project is focusing on three areas in particular: 1. highlighting indicators, 2. transformation strategies, and 3. the adjustments needed to make the transition to a circular economy a success.

These three areas are fundamental to answering the question of the distribution of value and wealth in the circular economy because, given the state of the art and the quantitative analyses used, the value of the circular economy has not yet been demonstrated and it is a priority to objectivize it.

Resolutely didactic, the report mobilizes various relevant operational indicators to account for circularity, with a complementary development on the eco-environmental modelling of economic sectors.

Nevertheless, it should be borne in mind that circular modes fall far short of traditional, linear economic modes. This means that the objectification exercise is still very incomplete as long as a genuine transformation of business models has not taken place.

Objective and plan of the study

The study has several objectives:

• Define the circular economy, understand its regulatory positioning and how it fits into business models;
• Objectivize the circular economy on the basis of relevant indicators, given the specific features of circularity, which require flows and activities to be linked (recycle, reuse, extend, renovate, reduce, give up);
• The conditions for accelerating the transformation of business models with the integration of circular processes;
• Determine a circular value by moving accounting towards circular accounting.

Part One: Towards a harmonized definition of the circular economy

Although some circular economy practices go back a very long way and have gradually disappeared with the waves of industrial revolutions, the concept emerged over 20 years ago, benefiting from various methodological, regulatory and conceptual advances.
The heterogeneity of circular economy definitions contributed to its slow take-off in the 2000s, despite support in France with regulatory progress, notably the 2020 AGEC law and the 2018 Afnor XP X30-901 standard.
Circular strategies are many and varied, and revolve around weak circularity with marginal changes to production systems.
The ISO 59000 series of standards, adopted in June 2024, has established a clear and economically advantageous vision of the circular economy, aimed at driving a virtuous dynamic of business models in favour of strong circularity. 

The report highlights several obstacles to the transition to a circular economy:

• High cost of recycled materials compared with virgin raw materials.
• Lack of adequate infrastructure to support large-scale recycling and reuse of products.
• Incomplete evaluation systems: there is a lack of solid indicators to effectively measure value creation in a circular model. Current indicators do not allow us to fully appreciate the decoupling of economic growth and reduced consumption of natural resources.

In conclusion, the circular economy is seen as an essential solution to environmental and economic challenges, but its large-scale implementation requires greater efforts in terms of regulation, infrastructure and monitoring of circular performance.

Part two: Objectivizing the circular economy

The importance of objectifying the circular economy lies in the need to make it tangible through metrics. This second part focuses on the selection and analysis of relevant circular indicators, such as the Circular Transition Indicators (CTI) and Circulytics. These tools make it possible to assess the circularity of companies on various aspects, including material flows and the efficiency of natural resources.

1. Circularity indicators :
- Circular Transition Indicators (CTI): Developed by the World Business Council for Sustainable Development, these indicators provide a framework for measuring and improving circularity within companies.
- Circulytics: A tool developed by the Ellen MacArthur Foundation, it assesses the circularity of companies by examining themes such as strategy, innovation and resource efficiency.

2. Eco-environmental modelling and experimentation on a practical case :
- Understanding the distribution of economic value in a value chain. The scale on which the eco-environmental modelling experiment is being carried out is that of the sector, with the example of anaerobic digestion sites. 
- Measuring the impact of the circular economy.

These indicators have a catalytic effect on the development and implementation of circular economy processes, mainly through the obligations to report extra-financial indicators in the field of the circular economy and natural resource management.

Part Three: Accelerating the transition to the circular economy

This section looks at strategies for accelerating the transition from a linear to a circular economy, identifying levers for redirection and proposing ways of developing circular accounting.

1. Regulations:
The XP X30-901 standard and other French legislative initiatives have played a crucial role in providing a framework for circular strategies in different sectors of activity.

2. Circular business models:
Analysis of the sustainability of circular business models shows their potential to go beyond the traditional linear approach. Examples include anaerobic digestion projects and initiatives such as Mob-Ion, which extends the life of components for greater efficiency.

3. Levers for transformation:
The ESRS/E5 and other regulatory mechanisms encourage the redirection of business models towards more circular practices. These levers include approaches such as the economy of functionality and industrial symbiosis.

4. Circular accounting:
A new accounting approach is needed to integrate systemic circular values, which go beyond the traditional boundaries of the company. Accounting adjustments are proposed to capture the value of circular loops and inter-firm interactions.

Presentation of the main results

1. Historical and evolutionary approach
The report also takes a historical approach to explaining the evolution of the circular economy, tracing its roots and highlighting how circular practices were abandoned in favour of linear models with the advent of the industrial revolution. This historical perspective provides a rich context for understanding the current challenges and future opportunities of the circular economy.

2. The importance of circularity indicators
The report focuses on the selection and prioritization of circularity indicators. It stresses the need to choose indicators that are accessible online and relevant for assessing circularity loops (maintenance, sustainability, reuse, recycling) at the level of materials, products or organizations. This detailed, methodical approach makes it possible to create a comprehensive overview of circularity in various industries.

3. New value chain metrics
The report proposes a new metric that takes into account the value chain and dependencies on other activities, as well as measuring the corresponding environmental footprint. Experiments carried out on the case of methanization show that the circular economy achieves much better environmental performance than the linear economy. For example, methane production from agricultural residues has a carbon footprint of 272 gCO2e/€, compared with 1,766 gCO2e/€ for natural gas production.

4. Systemic transformation and territorial ecosystems
The report insists on the systemic transformation of sectors or territorial ecosystems to make circular value visible. It emphasizes that circular value extends to the biosphere and takes into account the interdependencies and interrelationships between businesses and organizations, suggesting a more collaborative and integrated approach to maximizing the benefits of circularity.

5. Circular accounting
The report introduces the concept of circular accounting as a necessary condition for the deployment of circular modes. Circular accounting aims to capture a systemic circular value that current systems, formatted for the linear economy, are unable to capture. This idea proposes a revision of accounting rules to better reflect the values and benefits of the circular economy.

6. Impact of regulations and standards
The report discusses in detail the impact of regulatory developments and international standards, such as the ISO/59000 series of standards and the “Afnor XP X30-901” standard, on the development of the circular economy. The idea here is that these standards and regulations can serve as a foundation for accelerating the transition to more circular business models, by providing clear frameworks and incentives for businesses.

7. Eco-environmental modelling
The report proposes an eco-environmental and footprint-measurement methodology to tracing the value chain and activities' dependencies on natural resources. This approach is innovative in that it makes it possible to assess not only the economic performance, but also the environmental impact of circular practices, offering a more comprehensive overview of corporate sustainability. An experiment on a real case (an anaerobic digestion site) uses Insee data, data from the microeconomic data collection work on anaerobic digestion units, and the Exiobases and EcoInvent databases. Modeling leads to the production of several “footprints” (Carbon, Energy, Matter, Water).

8. Integration of rebound effects 
The report discusses the challenges associated with the circular economy, such as the rebound effect. It recognizes that efficiency gains can sometimes be offset by an increase in consumption or production. By taking these considerations into account, the report proposes strategies to minimize these negative effects, which is crucial to the long-term success of the circular economy.

9. Comparison of linear and circular models
The report compares linear and circular economic models. It examines how current valuation systems, information and metrics are adapted to linear modes but need to evolve to accommodate circular models. This comparison highlights the changes required for an effective transition.

10. Focus on the conditions for success
Finally, the report takes an in-depth look at the conditions required for a successful transition to a circular economy, through regulatory support, technological innovation, inter-firm collaboration, and consumer and stakeholder awareness.

The report concludes that the distribution of value and wealth in the circular economy requires accurate capture and measurement of circular value. This value must be broadened to include the interdependencies and interrelationships between businesses and local ecosystems. The transformation to the circular economy is a gradual process, requiring regulatory adjustments, innovations in business models, and new circular accounting.

The key points are:

• Standards and regulations: The ISO/59010 - 59010 - 59020 standards, which replace the Afnor XP X30-901 standard, are pillars for structuring and promoting the circular economy.
• Performance indicators: ITCs and Circulytics are essential for measuring and steering companies' circular transition.
• Business models: Examples such as anaerobic digestion, “Mob-Ion” and “Sncf réseau” illustrate the implementation of circular strategies.
• Circular accounting: The move towards integrated accounting is crucial to capturing the value added by circular practices.

The report does not simply repeat familiar concepts, but proposes innovative approaches and concrete solutions to promote and accelerate the transition to a circular economy.

Implementing these results

The circular economy is a concept that enjoyed a resurgence of interest in the 2000s, with cyclical crises raising the cost of raw materials. Furthermore, the benefits of the circular economy are needed to contain our development within planetary limits: "The inflow of materials is kept as low as possible and the circular flow of resources is kept as closed as possible to minimize waste, losses and discharges from the economic system" (ISO/59010 standard).

In France, despite the fact that the French Agency for Ecological Transition (Ademe) took the initiative very early on, in 2015, and despite regulatory changes (LTCV of 18 August 2015, the AGEC law, February 2020) and the “Afnor XP X30-901” standard in October 2018, the circular economy is still a solution that is struggling to get off the ground, and, given the economic context of recent years, is stagnating or even regressing according to the indicators calculated by the Circularity Gap Report - except in countries such as France and the Netherlands, which adopted regulations in favor of the circular economy at a very early stage. One of the obstacles to its development and take-up is the multitude of conceptions and definitions of the circular economy. The ISO/59010 standard published in June 2024 provides a definition on which all member countries agree. 

The issue of sharing value raises two questions: What value are we talking about? And what value do we want to share?

To this question, it would have been easy to answer that the value that is shared is financial value. This is mainly shared between shareholders and employees. The choice made for this R&D project was to prefer a broader, more global, systemic and circular value. A company that has decided to embark on a circular approach and wishes to account for the circular value it has generated will have to :
- Be able to trace the value chain, because a circular transformation impacts several stages in the production process;
- To be able to measure the environmental and social footprint of the activity in circular mode;
- Break down the circular value by activity and identify the distribution of this value between stakeholders.

Objectivizing the circular economy in this way is a necessary step if we are to measure the progress made by companies in adopting circular approaches.

- Selection and prioritization of circularity indicators
It is crucial to choose relevant circularity indicators to assess the circularity loops (maintenance/durability, reuse, recycling). These indicators must be adapted to the dynamic processes of the circular economy and must enable accurate measurement of the environmental footprint throughout the value chain.

- Conditions for accélération the transformation
To encourage the transition to a circular economy, it is necessary to define the conditions for acceleration, such as the regulatory base, redirection levers and circular accounting. These elements are essential if we are to identify a systemic circular value that current systems are unable to measure.

- Define and measure circular value
Before circular value can be distributed, it must first be captured and measured. This means understanding the value chain and the interdependencies between businesses, and measuring the environmental and social footprint of circular processes. The visibility of circular performance is an essential prerequisite for considering its distribution.

- Value sharing approaches
New economic models can be useful in structuring systems for creating collective, shared and multiple value. A fairer redistribution of profits between businesses is identified as an asset of the circular economy. Cooperation between businesses, facilitated by inter-company contracts, enables circular gains to be better shared through local or sectoral supply chains.

- Transformation and redirection levers
It is important to generalize circular economic models by using transformation levers. This includes support for eco-design, regional industrial ecology and the functionality economy. These levers must be aligned with a sustainable and attractive value proposition for businesses.

- Development of circular accounting
Specific accounting for circular processes is needed to trace the value chain and measure the economic, social and environmental impacts. This makes it possible to objectify the circular economy and better distribute the value between the various stakeholders.

In conclusion, the distribution of value in a circular economy requires a systemic approach integrating circularity indicators, regulatory and normative conditions, innovative economic models and appropriate accounting. Visibility of circular performance and cooperation between companies are also essential for a fair and efficient distribution of the value generated.

Conclusions

The question of the distribution of wealth and its value calls globally for innovations in business models with the integration of eco-design and eco-efficiency.

This work stresses the need to mobilize significant resources (data, public support, innovation) to enable circular business models to become widespread, and highlights the importance of cooperation between public and private players to make this transition a success.

Ten recommendations are made in the report to help create favorable conditions for the emergence and viability of circular models. These recommendations are assessed in terms of the key resources for deploying circular models and the strategies required. 

1. Robust data and traceability:
- Harmonize and compare data to effectively measure circularity.
- Improve the traceability of resource flows to optimize reuse and recycling processes.

2. Circular accounting:
- Implement circular accounting systems to monitor companies' environmental performance, incorporating indicators of sustainability and product life extension.
- Value sharing with a new organizational structure.

3. Support from public authorities:
- Public policies and tax incentives are needed to encourage circular practices on a large scale.

4. Training and collaboration with companies:
- Raising awareness of circular principles among accounting professionals.
- Promote inter-company cooperation to share the knowledge and benefits of circular practices.

5. Tax leverage:
- Use tax incentives to encourage companies to adopt circular solutions, in particular by taxing products with a high ecological footprint.

6. R&D and standardisation:
- Continue to invest in research and development to improve circular accounting systems.
- Adopt international standards, such as ISO 59000, to harmonize circular practices globally.

In summary, the recommendations underline the importance of reliable data, in particular through blockchain, collaboration between businesses and public support for a successful transition to a circular model.