DELIVERING THE CIRCULAR ECONOMY A TOOLKIT FOR POLICYMAKERS

DELIVERING THE CIRCULAR ECONOMY – A TOOLKIT FOR POLICYMAKERS • 77
circularity scenarios are ‘implemented’ into the CGE model. There are several
options to do this and these are discussed in greater detail in Appendix C.
5. Model runs and output: Scenario impacts are compared to the ‘business as usual’
levels to quantify the changes in key macroeconomic indicators such as GDP,
employment, industrial output, trade and CO 2
emissions.
Hybrid approaches are relatively time and resource intensive processes. Not all
policymakers may therefore opt for an economy-wide impact quantification on top of
the detailed sector-specific impact quantification.
AREAS FOR FUTURE METHODOLOGICAL DEVELOPMENT
While hybrid CGE models are among the best suited methodological options today, they
still have important shortcomings in terms of fully representing the circular economy.
As yet, many of the CGE models that have been used to assess structural change, and
including the one applied in the Denmark pilot study, are unable to fully represent the
economic structure, relationships between agents, materials and economic flows, and
other details of the circular economy. CGEs (and other economy-wide impact models)
have significant scope for development across several areas including:
• Comprehensive representation of materials and products flows: Many impact
assessment models represent energy, emissions, water or any other focus commodity,
but seldom represent together a broad spectrum of materials and products
flows (e.g. raw commodities; intermediate products; reusable by-products;
unusable waste, emissions and effluents; final goods). Explicit and comprehensive
representation of material and product flows would enable a much more
precise quantification of supply, demand, price and externality impacts from the
circular economy.
• Representation of new or expanding circularity sectors and economic relations:
The representation of such activities is often highly aggregated or lacking altogether.
These often include emerging or new value-adding activities that will play
an increasingly important role in the circular economy. An explicit representation
of emerging circularity activities would allow a precise quantification of the size,
price impacts, and added-value creation of circularity within the economy. Examples
of future developments in this area could include:
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New production methods: the representation of production technologies
that can substitute raw or virginal materials with usable waste or byproducts
from other sectors as production inputs, and technologies that
reduce the intensity of materials inputs in production. The alternative
potential production inputs will need to be incorporated into the data
for the social accounting matrix.
Expanded natural resource representation: Representation of natural
resources as inputs to production is often limited to important
depletable resource supplies in current models. To better capture the
value of reuse, representation of renewable natural capital stocks and
how those stocks are affected over time by alternative production
processes may be a valuable future development.
Product services vs. products: As consumers move towards greater
‘share, use and return’ behaviors, representation of consumer welfare
will require more emphasis on consumption of product services than of
the products themselves. For example, consumption of transportation
services will become more important to represent than numbers of
vehicles purchased.
• Representation of investment and finance: in most CGEs, capital is accumulated
through savings and investment. Capital stock in any time period is the sum of
depreciated capital from the prior period plus new net investment. The inter-