The circular economy mitigates the material rebound due to investments in renewable energy

The current macroeconomic models of the circular economy rely on the unrealistic assumption that materials can be recycled infinitely, often ignoring price and demand adjustments. In reality, most virgin materials are recycled only a few times, while the proliferation of cheap products made from recycled materials is likely to affect final demand. In this paper, we address both of these shortcomings. We propose a novel climate-economy agent-based model of the circular economy combined with the climate cycle and opinion dynamics. Consumers and producers are embedded in co-evolving networks, with preferences of consumers influencing the direction of technological progress and the diffusion of goods made from recycled materials. The main novelty of our study is that we compare the macroeconomic consequences of inputs being recycled once, twice and infinitely. We find that the more times materials are recycled, the more global temperature and resource depletion decrease. In addition, our study shows that the transition to renewable energy leads to the material rebound effect, where more raw materials are used in the manufacturing sector compared to an economy dependent on fossil fuels. Whether the circular economy can mitigate this effect depends on how many times inputs are recycled.