DELIVERING THE CIRCULAR ECONOMY A TOOLKIT FOR POLICYMAKERS

166 • DELIVERING THE CIRCULAR ECONOMY – A TOOLKIT FOR POLICYMAKERS
representing circular economy activities, sectors and flows of goods, materials and
externalities, on the other.
Figure C4 presents four potential approaches to represent circularity in a CGE
framework and their pros and cons. For policymakers to select which of those
approaches is best suited to their needs, there are three important aspects to consider:
1. Detail and precision in representation of economic relations in the circular economy
(e.g. are sectors and services associated with circular economy activities to
be explicitly modelled, e.g. product dismantlers in the refurbished goods supply
chain?).
2. Degree and scope of representation of economic and materials flows (e.g. in addition
to monetary flows, does the model need to explicitly represent physical
flows of virgin materials, recovered/recycled materials, different by-product and
waste types?).
3. Time and effort requirements,(duration of the assessment, access to internal and
external experts and modellers) and data and assumption requirements (quantity
of primary data readily available to model the required level of detail).
As shown in Figure C4, the approach selected for the Denmark pilot study was chosen
as a balanced compromise between the three criteria above.
As described in Section 2.3.1, the hybrid approach consists of several steps preceding the
actual CGE modelling. As described in Figure 19, it begins with representing the impact
induced by circular economy scenarios in the focus sectors in the form of an inputoutput
table. These changes are then used to ‘re-parametrise’ production (and utility)
functions according to the following procedure:
• Interpolate input effects from cost savings (or increases) as well as output effects
of revenue increases per focus sector for intermediate model years 2025
and 2030 based on the sector-specific quantification for years 2020 and 2035.
• Re-parametrise production functions (i.e. estimate new parameter values) to
match decreases (or increases) in the values of input factors into the focus sectors
relative to the baseline value.
• Re-parametrise production functions to match increases (or decreases) in the
values of the output from focus sectors relative to the baseline value.
• Impose these time-varying changes in inputs and outputs for all model years (i.e.
the input-output value structure of implementing the circular economy opportunities)
by redefining (re-calibrating) the production formulae of all focus sectors.
After re-parametrisation, the model is run and will optimise supply and demand of all
commodities and services in the economy via price impacts. The results for the reparametrised
version of the production (and utility) functions now represent the circular
economy scenario(s) in the CGE model and can then be compared to the baseline
scenario.
Scenario descriptions, key assumptions and sources
• The macro-economic impact modelling was conducted by calibrating the CGE
model to a ‘baseline’ (or business as usual) reference scenario and then quantifying
the changes to key macroeconomic indicators after running a ‘circular economy’
scenario through the model. Two scenarios were assessed, a ‘conservative’
and an ‘ambitious’ version of the circular economy.
• As described above, the scenario inputs to the CGE model were modified input-output
tables for Denmark for the years 2020 and 2035, where input and
output values were adjusted based on the impact from the sector-specific opportunity
assessment (see Section 2.2.3, Chapters 3.2–3.6 and Appendix B).