Peter Kjær Kruse-Andersen, University of Copenhagen

"Is Recycling Wasted? The Circular Economy and the Material Rebound Effect"

Abstract

We investigate how circular economy policies — such as increased recycling or reduced waste generation — affect the use of primary raw materials at the macro level. First, we develop a small analytical macroeconomic model and show that such policies may increase primary raw material use. Hence, circular economy policies may backfire, resulting in a negative environmental impact. To quantify this material rebound effect, we develop a Computational General Equilibrium (CGE) model that tracks both the mass and value of key materials such as metals, paper, plastics, and textiles. The CGE model features a detailed solid waste management sector and a novel production structure that separates materials from other intermediate inputs. We develop a method to calibrate the CGE model to both national accounts and material flow accounts. This enables us to track primary and recycled materials through the entire economic system. Our simulations indicate that traditional circular economy policies cause strong rebound effects, typically increasing aggregate primary material use. We discuss how to counteract the rebound effect and design cost-effective circular economy policies.

Authors: Rasmus Kehlet Skjødt Berg (University of Copenhagen), Peter Kjær Kruse-Andersen (University of Copenhagen), and Thor Donsby Noe (Aarhus University)