Modelling the circular economy: designing a global baseline of economic activity and material flows

This paper aims at describing the process to design a business as usual baseline scenario, and deriving the environmental consequences in terms of energy, emissions and material use. It starts by describing current demographic trends and corresponding Baseline projections. It then outlines economic trends and projections, including economic growth (GDP, consumption, sectoral composition) and its drivers, such as labour and capital. These trends are based on a gradual conditional convergence of income levels among countries. In its final section it explores two factors which directly link economic trends to environmental pressures: energy use (energy mix such as fossil fuels, renewables and nuclear) and land use (in particular agricultural land). Two original results are expected from this paper compared to the previous ones describing the baseline creation methodology. First, the methodological results consists in developing a procedure to represent the circular economy in a global multi-region CGE model and link material use to economic output. The second output is a material-explicit baseline that goes beyond the current economic projections in which at best energy is described. From these results, the quantification of material use and flows in the projected baseline indicates the critical materials to monitor for supply security as well as greenhouse gas and outdoor air pollutant emissions. Material flows and the relative decoupling from economic activity can be calibrated to historical trends and information in the literature. This allows projections of resource efficiency, growth employment and trade. The model extension and baseline developed in this paper constitute a solid starting point to assess the impact of public policies promoting the transition to a circular economy. The effects of these policies on growth, competitiveness, and employment constitute the cornerstone of the rhetoric advocating for them and can be tested in the developed framework.