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The Basic Environmental Economics of The Circular Economy
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The Basic Environmental Economics of The Circular Economy

Author

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  • Peter Birch Sørensen

    (Department of Economics, University of Copenhagen)

Abstract

This paper sets up a Ramsey model with exhaustible natural resources to study the optimal recycling of polluting raw materials and household waste products. During the process of economic development it is optimal for the economy to go through an initial “linear” phase with no recycling followed by a “circular” phase where some materials and waste products are recycled to alleviate growing natural resource scarcity and environmental degradation. Ensuring the optimal degree of recycling in a market economy requires a Pigouvian tax on non-recycled raw materials combined with a subsidy to recycling of household waste and a tax on man-made wealth to internalize the environmental cost of capital accumulation.

Suggested Citation

  • Peter Birch Sørensen, 2017. "The Basic Environmental Economics of The Circular Economy," EPRU Working Paper Series 17-04, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:epruwp:17-04
    as

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    File URL: http://web.econ.ku.dk/eprn_epru/Workings_Papers/WP-2017-04.pdf
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    References listed on IDEAS

    as
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    12. Highfill, Jannett & McAsey, Michael, 1997. "Municipal Waste Management: Recycling and Landfill Space Constraints," Journal of Urban Economics, Elsevier, vol. 41(1), pages 118-136, January.
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    15. Pittel, Karen & Amigues, Jean-Pierre & Kuhn, Thomas, 2010. "Recycling under a material balance constraint," Resource and Energy Economics, Elsevier, vol. 32(3), pages 379-394, August.
    16. Di Vita, Giuseppe, 2007. "Exhaustible resources and secondary materials: A macroeconomic analysis," Ecological Economics, Elsevier, vol. 63(1), pages 138-148, June.
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    Cited by:

    1. Lafforgue, Gilles & Lorang, Etienne, 2022. "Recycling under environmental, climate and resource constraints," Resource and Energy Economics, Elsevier, vol. 67(C).
    2. Lafforgue, Gilles & Rouge, Luc, 2019. "A dynamic model of recycling with endogenous technological breakthrough," Resource and Energy Economics, Elsevier, vol. 57(C), pages 101-118.
    3. Animesh Ghosh & Prabha Bhola & Uthayasankar Sivarajah, 2022. "Emerging Associates of the Circular Economy: Analysing Interactions and Trends by a Mixed Methods Systematic Review," Sustainability, MDPI, vol. 14(16), pages 1-41, August.

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    More about this item

    Keywords

    Circular economy; linear economy; optimal recycling; Hotelling rule; Pigouvian taxation; Environmental Kuznets Curve;
    All these keywords.

    JEL classification:

    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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