Circular economy: what it is, advantages, regulations, and examples

We're hearing more and more about the circular economy and a shift in production paradigm. The National Recovery and Resilience Plan (NRRP) has also allocated €2.1 billion, within Mission 2, Green Revolution and Ecological Transition, to "improve the efficient and sustainable management of waste and the circular economy paradigm." But what exactly is a circular economy, and why is pursuing this model of production and consumption so important?

Classical economics has always been based on a linear system that involves the extraction of resources, which are used to produce goods, which, at the end of their useful life (i.e., when they are no longer needed or have been partially consumed), are discarded. The limitation of this type of process is that the planet's resources are finite, and the rate at which we have and are consuming them is faster than their capacity to regenerate. Furthermore, the production of waste generates pollution that is harmful to living beings and waste that is increasingly difficult to dispose of.

The circular economy, on the other hand, is a system that maximizes the value of products, materials, and resources by encouraging their use for as long as possible and minimizing or eliminating waste and/or scraps, which are viewed as resources, inputs, for production cycles different from the initial one.

"A circular economy is a system that maintains the value of products, materials, and resources in the economy for as long as possible and minimizes waste generation. It therefore means a system in which products are reused, repaired, remanufactured, or recycled," reads the official glossary published by the European Union institutions. It also notes that "circular economy actions also contribute to other key priorities of the European Union, including a green recovery, climate change mitigation and energy saving, biodiversity protection, and global efforts for sustainable development."

Among the first and most famous organizations funding circular economy projects is the Ellen MacArthur Foundation , based in Chicago and named after its co-founder, a renowned sailor. "The circular economy," its website states , "is a system in which materials never become waste and nature is regenerated. In a circular economy, products and materials remain in circulation thanks to processes such as maintenance, reuse, repair, reconditioning, recycling, and composting."

"The circular economy addresses climate change and other global challenges—such as biodiversity loss, waste, and pollution— by decoupling economic activity from the consumption of finite resources ," the definition continues. Described as a "resilient and beneficial" system, the circular economy is based on three principles defined from the design stage: "eliminating waste and pollution, maintaining products and materials in use (at their highest value), and regenerating nature."

As mentioned, the linear economic model has dominated for the past few decades. It views nature as a pool of resources to be exploited for human consumption, applying an extractive model: "take, produce, use, and throw away." At the end of its life cycle, the good becomes waste and must therefore be disposed of. The circular economy doesn't limit itself—as many think—to recycling waste, but also, and above all, acts upstream, structuring the production and consumption model to reduce the consumption of resources required to produce the good, keeping it in circulation as long as possible, and giving it a second life (or more than one). While the linear economy exhausts and degrades, the circular economy regenerates and conserves.

This paradigm shift hinges on five key principles that guide the design, production, and organization of business models.

According to the Ecodesign your future study, up to 80% of a product's environmental impact is determined during its design phase. This is why a circular approach must be implemented at this stage, adopting the necessary measures to ensure products are durable and can be repaired, disassembled, transformed, remanufactured, and recycled.

In the circular economy, recycling is an option to be considered only in the rare cases where no other solution is possible. Design, in fact, seeks to prevent waste generation from occurring in the first place: this requires rethinking the choice of materials, processes, usage patterns, packaging, and ancillary services (such as repair or replacement of spare parts).

In the circular economy, materials must remain in circulation for as long as possible, through technical cycles (such as recycling, reuse, and remanufacturing) and biological cycles (such as composting). The goal is to maintain the value of products and resources over time, reducing the need to extract new raw materials.

To extend the useful life of goods and devices, the first pillar is quality. If the materials are durable and the design is thoughtful, products can be easily repaired, upgraded, or converted. It is the company's responsibility to provide—free or at an affordable cost—maintenance, technical support, and updates.

Another circular strategy is the shift from ownership to use. Instead of selling a product, companies can offer services: this is the case with car, motorbike, bicycle, and scooter sharing, or the rental of clothing and sports equipment, or coworking spaces. This puts fewer goods (whether vehicles, objects, or furniture) into circulation because it provides people with an alternative (usually cheaper) to purchasing them and then using them for a limited time.

The circular economy model is based on a systemic approach to resource management, in which every stage of the product life cycle is designed to minimize waste. This approach can be summarized in the 5 Rs: reduce, reuse, recycle, collect, and recover .

The first "R" is the essential starting point. Reduction means limiting the quantity of materials and resources used to produce goods and services at the source, through design that avoids waste. It also means choosing durable, efficient, and low-impact materials, optimizing production processes to consume less energy, water, and raw materials.

Reusing means extending the useful life of objects, giving them a second chance before they become waste. This can be through direct reuse (a classic example is a water bottle instead of a plastic bottle) or through repairing or repurposing products and components. Reusing reduces the demand for new materials and lowers the overall environmental footprint.

When a product can no longer be reused, the third "R" comes into play: recycling . Recycling allows waste to be transformed into new resources, recovering materials such as plastic, metal, glass, or paper to be reintroduced into production cycles. An efficient recycling system requires proper waste separation and advanced technologies to separate and treat materials safely and effectively.

Collection is a crucial step in ensuring proper waste treatment and subsequent recycling. A well-organized, comprehensive, and selective collection system allows for the separation of recoverable materials from non-recyclables, facilitating the work of sorting plants and reducing the amount of waste destined for landfill or incineration.

The final "R" is recovery , that is, valorizing what cannot be reused or recycled, transforming it into energy or other useful materials. This is the case of energy recovery from waste through waste-to-energy plants, or the recovery of chemicals or nutrients. This step allows us to close the loop and limit final waste.

The circular economy, therefore, implements strategies that extend the life and use of raw materials, products, various components, and waste. Consider, for example, clothing . As highlighted by the European Commission, in its recent proposals to make the textile sector more sustainable , the average European citizen throws away 11 kg of textiles per year, and globally, approximately one truckload of clothing is landfilled or incinerated every second. This is a waste of resources, considering that the fibers from which garments are made can be recycled and reused to create new fabrics and re-enter the textile industry's production cycle.

Or, again, think about food. To date, estimates from the UNEP (United Nations Environment Programme) suggest that approximately 8% to 10% of greenhouse gas emissions are associated with discarded and uneaten food ( “food waste” ) . By using this waste in biorefineries, it is possible to produce biofuel from which energy can be generated . This way of redesigning the economic model therefore has a series of tangible benefits , both for companies and for the environment .

By avoiding waste , the circular economy also reduces the enormous environmental impact associated with it. Humanity produces over 2 billion tons of waste annually, and projections suggest that, at this rate, this figure will reach 3.78 billion by 2030. Sixty-two percent of this waste is managed by municipal waste management facilities: of this 62%, 19% is recycled, and 30% ends up in landfills. The remaining 38%, however, is burned or dumped in the environment . All of this has a huge impact on the health of ecosystems, animals, and people. Landfills are also sources of CO2 and other greenhouse gases due to the decomposition of organic material. Therefore, some studies argue that applying circular economy strategies to five particularly high-impact sectors (cement, plastic, steel, aluminum, and food) could prevent the emission of 9.3 billion tons of CO2 equivalent into the atmosphere . It's roughly equivalent to eliminating the climate impact of all means of transport used in the world.

Earth's resources are mostly finite . The more these are and will be consumed, thus tending to become depleted, the higher their prices will be. As anticipated, the circular model maximizes resource use while reducing supply problems for raw materials , which often come from abroad and are subject to cost fluctuations related to climatic, geopolitical, and financial factors.

According to the Ellen MacArthur Foundation, implementing a circular economy system could save $700 million annually on material costs in the fast-moving consumer goods industry.

Another interesting figure is provided once again by the European Parliament, which estimates that reconditioning light commercial vehicles instead of recycling them could lead to material savings of 6.4 billion euros per year (around 15% of material expenditure) and 140 million euros in energy costs, with a reduction in greenhouse gas emissions equal to 6.3 million tonnes.

According to the data According to data provided by the European Parliament, the transition to a more circular economy could lead to a 0.5% increase in GDP. Furthermore, the European Union's action plan on this front foresees an increase in employment and estimates that the circular economy could create 700,000 new jobs by 2030.

The circular economy model is based on a new approach enabled by innovation . First and foremost, technological innovation is necessary to create industrial synergies and links between the "end and beginning" of different production cycles, as well as to design new material solutions. But it also involves legislative innovation, which is essential to facilitate and enable what is currently considered waste to be used as new raw materials. Finally, it involves behavioral innovation , because the circular economy embraces a different consumption style that must also be facilitated by consumers.

Although these concepts are now consolidated, the numbers show that the circular economy is still far from being the dominant paradigm. According to the According to the Circularity Gap Report 2025 , the global economy consumes 106 billion tons of materials annually. Of these, just 6.9% come from recycling: a percentage that has actually decreased by 2.2 percentage points compared to 2015. While it is true that the quantity of recycled materials increased by 200 million tons between 2018 and 2021, consumption has simultaneously grown so much that it has completely offset this progress. To develop effective and realistic circular transition strategies, it is essential to acknowledge the challenges—technological, economic, and cultural—that must be addressed.

Many industrial sectors face technical limitations in converting processes to a circular economy: the limited availability of high-quality recycled materials, difficulties in separating composite materials, and the lack of efficient recovery technologies or reverse logistics systems are just a few examples. Added to this are the lack of specialized skills , especially in small and medium-sized enterprises , and cultural and organizational resistance.

The transition to a circular economy—whether spontaneous or driven by regulations—may require repurposing facilities, experimenting with new business models, and conducting research and development on new materials or products. These are all activities that require significant initial investments , often with medium- to long-term outcomes to be assessed. Opportunities to access public funding or various incentives can at least partially offset this entrepreneurial risk.

For a sector to be considered mature, internationally shared definitions, metrics, and standards are essential. Only in this way can companies measure their progress, benchmark themselves against competitors, and credibly communicate their performance. Among the tools emerging are the ISO 59010 standard (Circular Economy – Guidelines) and the ESRS E5 standards for sustainability reporting in accordance with the CSRD (Corporate Sustainability Reporting Directive).

Such a paradigm shift requires the active participation of businesses. This participation, however, must be coordinated and encouraged by regulations. In this area too, the European Union aims to lead the way.

The European Union has made a significant effort to grow the circular economy through its successive Action Plans . The first ran from 2016 to 2019 and included 54 actions , all of which have been completed. These include, for example, the adoption of a single methodology for measuring food waste , voluntary protocols for the management of construction and demolition waste, measures to combat false green claims, and so on. The second Action Plan for the Circular Economy, launched in March 2020 , contains 35 actions that must be adopted progressively, without a single deadline. Legislative acts already in force include the Ecodesign for Sustainable Products (ESP), the Empowering Directive, which prohibits ambiguous and unverifiable green claims, the Right to Repair Directive, the Packaging Waste Regulation (PPWR), and the Battery Regulation.

The second Circular Economy Action Plan is part of the European Green Deal , the colossal green transition plan whose primary objective is to reduce the European Union's net emissions to zero by 2050. In the aftermath of the Green Deal's announcement, the outbreak of the pandemic upended the political agenda, but environmental concerns remained high. Indeed, the first European Commission led by Ursula von der Leyen decreed that 30% of the Next Generation EU fund (the so-called Recovery Plan) should be invested specifically in the Green Deal.

Italy , the largest recipient of these funds, has earmarked €55.5 billion in its National Recovery and Resilience Plan (NRRP) for the Green Revolution and Ecological Transition mission. This mission also addresses the circular economy, with €600 million for highly innovative projects for the treatment and recycling of waste from strategic supply chains (such as electrical and electronic equipment, paper and cardboard, textiles, and plastics) and €1.5 billion for the construction of new waste management facilities and the modernization of existing ones.

The regulations cited entail a long series of very concrete obligations for companies: among many others, we can cite the introduction of a digital product passport, the ban on the destruction of unsold textiles , and the introduction of environmental criteria in public tenders, all of which are required by the Ecodesign Regulation. In addition to regulatory requirements, pressure from consumers and investors is also moving in this direction.

Implementing the circular economy in a company requires more than one-off initiatives: on the contrary, an integrated, holistic, and data-driven approach is needed. This is a radical evolution because it goes beyond a single product line and requires rethinking processes and, sometimes, the entire business model. However, it is the only path that can guarantee real and lasting results —both environmental and economic.

Life Cycle Assessment (LCA ) is based on an internationally standardized methodology established by ISO 14040 and ISO 14044. Essentially, it measures the environmental impacts associated with each phase of a product or service, from raw material sourcing to consumer use and end-of-life. This mapping allows companies to specifically identify critical points requiring intervention, avoiding wasting resources on interventions intended to yield marginal results.

The circular economy is not limited to the design and disposal of products but also affects business models , finding its expression in practices such as:

• sharing vehicles (car sharing, bike sharing, etc.) or spaces (coworking);
• product-as-a-service , i.e. rental or leasing;
• the recovery and regeneration of used components;
• the offer of after-sales services such as repairs .

To systematically structure environmental strategies and give external credibility to their circular economy commitments, companies can obtain certifications recognized at European or international level:

• ISO 14001: This is the international standard for environmental management systems. It does not impose specific environmental results, but helps organizations define objectives, procedures, and tools to monitor and improve their performance.
• EU Ecolabel: This is the European eco-label awarded to products or services with a reduced environmental impact throughout their life cycle. Recognized throughout the European Union, it is particularly widespread in the textile, tourism, detergent, and paper industries.

These certifications are also useful for ESG reporting, participation in public tenders, and access to European funds for the ecological transition.

There are a growing number of examples of the circular economy and initiatives that echo its principles. Here, we present seven in particular, promoted by Barilla, IKEA, Too Good To Go, Lavazza, Patagonia, Econyl, and Caviro.

A historic example is the collaboration, begun in 2014, between Favini , an Italian paper manufacturer, and Barilla , which gave rise to the "CartaCrusca" project. Thanks to this synergy, Barilla recovers the bran resulting from the milling of the cereals used by the company (wheat, barley, rye), and Favini uses it to produce paper for the packaging of some Barilla products, including those of the "Selezione Italiana" line.

The Swedish multinational has committed to becoming a circular business by 2030. To achieve this goal, the company implements a series of practices such as material recovery and product regeneration, allowing it to already boast products made 100% from production waste and recycled materials . Customers also have the option of reselling their used IKEA furniture, which is then reintroduced into the market in the so-called Circularity Corner. The chain also offers spare parts and a repair service for broken modules.

Too Good To Go is the app that fights food waste . Through the platform, you can order a "surprise box"—a package of excess food left over from supermarkets, bakeries, restaurants, and various grocery stores. This way, the store avoids throwing away unsold items; customers, in turn, get deeply discounted prices.

In collaboration with Novamont , an Italian chemical company active in the bioplastics sector, Lavazza has been producing a biodegradable capsule since 2015 that can be disposed of as organic waste and become fertile compost, even along with used coffee grounds. Research and development continued until 2025, when it launched a capsule made exclusively from pressed ground coffee , which can be used with a specially designed machine: a sort of "capsule-less capsule" that produces no waste.

Patagonia was the first company to produce fleece clothing in 1993 Using recycled plastic bottles (recycled polyester), reducing dependence on oil as a raw material. The brand also uses recycled nylon, derived from post-industrial waste fibers, yarns, and post-consumer weaving scraps, to produce some of its jackets and technical garments.

Furthermore, for several years now, the brand, now a global ambassador for sustainability, has introduced the "Worn Wear Guarantee," which guarantees consumers free repairs (except for local shipping costs to send the package to the regional collection center) for garments that break or have quality issues. At its Worn Wear hub, Patagonia tries to keep garments alive as long as possible by repairing and recycling them.

Econyl , Aquafil 's flagship product, is a regenerated nylon yarn produced by recovering, purifying, and transforming fishing nets, fabric scraps, used carpets, and industrial plastics. These materials would otherwise have been disposed of or, worse still, dispersed into the sea. Its characteristics are identical to those of conventional nylon, which is made from hydrocarbons. Brands that have chosen Econyl for their collections include Prada, Arena, Stella McCartney, Burberry, and Gucci.

Caviro , the winemaking cooperative with 12,000 growers in seven regions and best known for its Tavernello brand, has long since introduced the principles of the circular economy into its production model. Waste from grape processing, such as pomace and lees, is collected along with grass clippings and prunings, regenerated to produce—depending on the type of waste and the process used—ethyl alcohol, natural tartaric acid, extracts, fertilizers, or energy. This virtuous cycle, beginning with harvesting and continuing with regeneration , concludes with restitution : the resulting products are sold or used in the fields.