How can a transition to a circular and green economy affect the micro and macro economy of a country?

Humanity has and will continue to experience the unprecedented ramifications of climate change. More frequent and intense drought, storms, heat waves, rising sea levels, melting glaciers and warming oceans can directly harm animals, destroy places around the world and wreak havoc on people’s livelihoods and communities. As climate change worsens, dangerous weather events are becoming more frequent or severe. The need to address immediately is indescribable and it can be achieved through a plethora of ways. One of the most important and effective ways to tackle this issue is to transition to a circular and green economy. However, how can a transition like this affect either positively or negatively the micro and macroeconomy of a country?

A transition to a circular economy will have some profound effects on the microeconomy of a country. More specifically, measures such as waste prevention, eco-design and re-use could save EU companies money while also reducing total annual greenhouse gas emissions. That way companies will have more money to invest, leading to an increase in their supply while the costs of expenditure remain the same. Also, green economy goes hand in hand with a more sustainable environment. That means that repercussions of climate change are going to be limited and thus two fundamental factors that may lead to shifts in supply (a change in weather conditions and a change in exogenous factors) are going to be eradicated in a great extent and the market is going to become more stable as there won’t be sudden shifts in supply or demand. Also, many companies that monopolise the market are going to have less power due to the new environmental rules. That will lead to a market that the perfect competition prevails. However, it is of paramount importance that the shift to a green economy is smooth and gradual. Otherwise, companies that used to have big environmental footprints might not be able to make the transition overnight, which might even lead them bankrupt.

Furthermore, the overwhelming amount of the positive effects that a shift in a circular and green economy has stands on the macroeconomy. According to the International Labour Organization (ILO), changes in energy production – including the generation of renewable energy, greater efficiency, adoption of electric vehicles and increasing efficiency in buildings – can create a net gain of 18 million jobs throughout the world economy. If that’s not enough according to the Club of Rome, a full adoption of a circular economy would create more than 75,000 jobs in Finland, 100,000 in Sweden, 200,000 in the Netherlands, 400,000 in Spain and 500,000 in France by 2030. Environmental economists consider that circular economy creates growth since it increases resource and energy efficiency and creates added value when materials are used several times instead of only once. Based on recent research conducted from the European Commission a transition in a circular economy can increase by 1% the EU GDP and attract 15 billion euros of private capital in a year.

By and large, a transition to a circular economy is necessary for the preservation of our natural environment and the prevention of the complete climate change. Even though it has some drawbacks, the benefits outweigh them and are multiple in both micro and macro economy.