Resource scarcity, circular economy and the energy rebound: A macro-evolutionary input-output model

We propose an Agent-Based Stock-Flow Consistent model combined with a simplified Input-Output (IO) structure\r\nof production. In the model, heterogeneous firms interact in the energy, material, capital and consumption\r\nmarkets. Materials for production of consumer goods can be manufactured using non-renewable or recycled\r\nmaterial inputs. We examine the conditions under which the circular economy emerges through market mechanisms, as well as it can be a source of the rebound effect. An important novelty of our approach is that recycling\r\nand mining sectors employ different types of capital for production. Capital goods (machinery) are produced by\r\ncapital firms, which constantly engage in innovations to improve their technological features. This way we\r\nendogenize changes in technological coefficients of the Input-Output tables. We show that sectoral interdependencies along the value chain can render the energy rebound effect due to the circular economy (CE)\r\neven if energy intensity of the recycling process is lower compared to mining. This effect depends on the impact\r\nof investment in the recycling sector on the aggregate demand and energy use along the entire value chain. We\r\nassess the role of macroeconomic policies, namely mission-oriented innovation policies (MOIPs), active fiscal\r\npolicies (AFPs), and environmental taxes in fostering the CE transition, while mitigating the rebound effect. We\r\nfind that the combination of MOIPs and active fiscal policy is the most effective in promoting the circular\r\neconomy, preserving employment and ensuring a sustainable growth path.