European measures for the circular transition seem to be struggling to take root: over 87% of resource consumption in the European Union continues to rely on virgin raw materials. In line with the reduction in the circularity rate highlighted by the 2024 Circularity Gap Report, this evidence exposes the global increase in resource extraction and consumption.
However, this reasoning does not take into account the uncomfortable circumstance that the circular transition is not generating its intended environmental benefits, perhaps falling short of expectations. This could be due to a still little-known phenomenon that we should start addressing: the rebound effect.

An issue from over a century ago

The rebound effect was born over a century and a half ago in the Victorian era, a few years before the second industrial revolution. In 1865, the economist William Stanley Jevons observed that technological innovation which improved the efficiency of steam engines did not reduce coal consumption, but rather increased it due to their more intensive use. This paradox – known as the rebound effect – is still relevant today: it is the reason why, for example, people tend to use a more efficient car more frequently.

Over time, the rebound effect has surpassed its original boundaries and has emerged also in the material flows involved in the circular transition. The improvement in production and consumption processes achieved through environmentally friendly circular practices (such as recycling, reusing, regenerating, refurbishing, etc.) can, in fact, lead to an increase in production and consumption, which partially or totally offsets the environmental benefits expected from these practices. In other words, under certain conditions, recycling, regenerating, or recovering a product at the end of its life cycle could become counterproductive from an environmental perspective. A kind of unexpected side effect.

The rebound effect is unfortunately far from being a purely theoretical phenomenon. In Europe, the rebound effect has been recognised in the field of energy efficiency for over 10 years, and evidence of its presence in the circular economy is also available. For example, in 2018, researchers Tamar Makov and David Font Vivanco, in their study titled Does the Circular Economy Grow the Pie? The Case of Rebound Effects From Smartphone Reuse, estimated that one third of the emission savings expected from the use of refurbished smartphones in the United States — and up to the entirety in the case of specific models — is offset by the rebound effect.

In the 2021 study titled Innovative Recycling or Extended Use? Comparing the Global Warming Potential of Different Ownership and End-of-Life Scenarios for Textiles, a team of Finnish academics estimated that, due to the rebound effect in the European textile sector, producing a new pair of jeans does not pollute less than recycling an old pair but is even 15% less environmentally friendly than sharing it according to the principles of the Sharing Economy. Similarly, the 2020 research Reviewing Circular Economy Rebound Effects: The Case of Online Peer-to-Peer Boat Sharing, published by researchers Jon Warmington-Lundström and Rafael Laurenti, shows that the rebound effect could limit the environmental benefits of vehicle sharing services.

Generating mechanisms of the Rebound effect

The rebound effect is a rather counterintuitive concept that questions the ability of secondary goods – those produced through reuse, recycling, refurbishment, or similar practices – to prevent the production of primary goods – those made from virgin raw materials through a linear production approach, and generally more polluting than secondary goods. Typically, the circular economy takes for granted that one unit of a secondary good will prevent the production of one unit of the corresponding primary good (a scenario known as displacement): for example, that recycling a tonne of aluminium cans will avoid the production of a tonne of aluminium and reduce the bauxite extraction needed for this production. This assumption is rarely true due to the economic nature of a circular economy, where displacement between primary and secondary products is affected by the limited substitutability of products and the effects that their price exerts on their demand.

Limited substitutability is the limited ability of secondary products to displace primary ones in consumer preferences due to lower, either actual or perceived, quality. For instance, recycled paper is unlikely to compete with virgin paper because it has different mechanical properties and aesthetic characteristics and cannot replace the virgin one in all contexts. In other cases, limited substitutability may be due to brand loyalty. This is the case with refurbished electronic devices: while they may have similar features to new ones, a loyal customer of a brand is unlikely to forgo purchasing the latest version of his/her preferred smartphone model in favour of a second-hand one. As a result, secondary products do not always displace and prevent the production of primary goods. Often, the two types of production run parallel, expanding consumer choice while, at the same time, increasing global production, extraction, and pollution.

Price effects are a market reaction to the introduction of secondary products. To encourage consumers to buy secondary goods, such as a piece of clothing recycled from materials of varying quality compared to virgin fibre products, a producer might decide to lower the price to make the purchase more attractive and facilitate market penetration. In many cases, the lower price of the recycled item will increase its demand: after all, it is a “green” product, it is cheap, it is environmentally friendly, and it adds value to the wardrobe. Higher demand will lead to unforeseen overproduction and, consequently, additional unexpected emissions that are beyond what was initially anticipated.

How to estimate the Rebound effect

To make an elusive phenomenon like the rebound effect more tangible and attempt to manage it, the first step is to measure it. After all, “you can’t manage what you don’t measure” – a claim variably attributed to economist Peter Drucker or the father of Total Quality Management, Edward Deming. It is to address this need that, together with an international team of three colleagues from the Sheffield University Management School (Ben Harvey Lowe, Meletios Bimpizas-Pinis, and Andrea Genovese), we developed a study focused on how to estimate the rebound effect in circular contexts, enabling its potential prevention or the mitigation of its impacts in the future. This study, published in the Journal of Cleaner Production by Elsevier, provides an overview of techniques that can be used to estimate the rebound effect in a circular economy.

Examples of techniques include estimating elasticity parameters, econometric techniques and models, macroeconomic approaches based on computable general equilibrium models, input-output analysis, or Stock-Flow Consistent modelling, system dynamics, and simulations. The article underlines how the rebound effect has different impacts, characteristics, and measurement techniques depending on the level of assessment, such as a single company (micro), a supply chain, sector, or market (meso), a national economy (macro), or an international economy (global). Additionally, it emphasises how the intensity of the rebound effect can evolve over time and how certain business or policy decisions could potentially trigger a domino effect, for instance, generating a rebound at the supply chain level that cascades to the national level.

Conclusions

Due to the rebound effect, recycling, reusing, and regenerating are not necessarily synonymous with environmental sustainability: efforts must be made to guarantee they are. Circularity does not automatically mean sustainability. The focus of the circular transition on material flows has led to overlooking the fact that a circular economy is, first and foremost, an economy. As such, it responds to market mechanisms that can undermine its environmental aims. Let us get back the concept of circularity not as an objective in itself, but as a means to achieve sustainability, primarily environmental and economic. No longer circularity for the sake of circularity itself, measured in abundance (perhaps excessively) by means of indicators that tell us little about actual environmental performance, but circularity that is effective in reducing environmental impacts. Not just circularity, but good circularity.

Image: Envato Elements

This article is also available in Italian / Questo articolo è disponibile anche in italiano