Modelling circular economy impacts in the context of a transition to a fair and sustainable economy. The need to combine bottom-up and top-down MFA, LCA and GE Models

Existing forward-looking models such as Integrated Assessment Models (IAMs), Energy models, and (Computable) General Equilibrium (GE) models work well for assessing energy and climate problems. But such top-down, usually economy-wide models have limited sector resolution. They cannot assess highly product specific circular economy (CE) strategies such as component re-use, refurbishment, or high quality material recycling. This requires detailed physical systems modelling. Material Flow Analysis (MFA) and Life cycle assessment/costing (LCA/LCC) offer this detail and physical basis. But these mainly physical, partial and static bottom-up models lack the economy-wide socio-economic impact assessment capabilities and endogenized dynamic features of e.g. GE models. We propose here a hybrid approach as solution. GE models with an Input Output (IO) core could be used as a basis, at a state of the art detail of 100-150 sectors/products and over150 countries, preferably backed by a (consortium of) international institutions to provide formal status. Higher detail, physical layers, and sectoral capital stock vintage information may be provided in a research context. Detailed bottom-up MFA and LCA/LCC assessments are then to be hard- or soft-linked to the IO core of the GE model. Even then questions remain as how CE interventions may induce changes in value added capturing in economic networks, stimulate diffusion of new technologies, and limit damages of environmental change on the economy. Additional qualitative and quantitative assessments can help to include such effects exogenously in a GE model. The fallacy of modelling the future based on historical trends can be overcome by using models in a back casting rather than forecasting mode. Models then are used to check under which conditions pathways to normatively desired futures can be realized. This approach allows assessing the social, economic and environmental impacts of CE policies comprehensively, and hence how CE can support the transition to a fair and sustainable economy.