Peers’ perspective on rebound effects.

A recent survey of over 3,000 employees revealed that most workers have limited understanding of the "rebound effect" - a concept that describes how efficiency improvements can sometimes lead to increased overall resource use. Nearly two-thirds of respondents indicated they had minimal familiarity with this idea, while less than 12% demonstrated strong knowledge of it.

The study found a clear connection between job responsibilities and awareness: employees whose roles included sustainability tasks were much more likely to understand rebound effects, with only 4% reporting no familiarity compared to 60% among those without sustainability responsibilities. However, even workers in sustainability-focused positions showed knowledge gaps, suggesting there's room for improvement in educating all employees about how efficiency gains can sometimes backfire and lead to unintended environmental consequences.

Companies can identify strategic approaches that satisfy both business requirements and sustainability commitments, recognising that in many cases, properly managing rebound effects can simultaneously serve environmental goals and long-term business success.

Why should businesses care about rebound effects?

By taking action on rebound effects within their control, companies might benefit from:

• Stronger brand reputation and consumer trust through genuine environmental stewardship.
• Higher employee engagement by ensuring sustainability initiatives deliver meaningful environmental impact, reinforcing organisational purpose.
• Sustainability investment protection by safeguarding the Return On Investment (ROI) on environmental initiatives
• Financial and compliance risk mitigation, including carbon taxation, while meeting ambitious sustainability targets.
• Business model resilience assurance by reducing resource dependencies and vulnerabilities
• Market expectation alignment with consumers and Business2Business customers demanding authentic sustainability credentials and condemning greenwashing.
• Ethical concerns regarding the company's responsibility to contribute meaningfully to environmental sustainability and climate goals.

These insights come from a series of consultations and reflections as part of the Circular ReBoundary project (CircEUlar Deliverable D3.2.) and may not be applicable to all organizational contexts.
Should you identify additional factors not represented here, we encourage you to contact us at circular.reboundary@cmcc.it for further discussion.

The rebound dynamics

CMCC’s research, "From (Micro-)Circularity to (Macro-)Mitigation", conducted under the CircEUlar project, identifies key pathways through which circular business practices systematically influence resource use at the broader societal level. These pathways offer valuable insight into the broader impacts of circular models, though they are not exhaustive and do not capture all rebound effects.

Financial aspects and final demand

Adopting circular solutions comes with significant cost considerations, as it may require new expertise, technologies, or capital investment, although the circular practice could also help reduce production costs over the medium term.

It is essential to consider how these changes in costs affect pricing. Will costs or savings be transferred to the consumer? A lower price could drive higher demand, while increased revenues or profits will impact resource consumption depending on their allocation.

Finally, introducing a circular product or service may lead to displacing existing offerings, within your company or across the market, reshaping consumption patterns in unexpected ways. Substitution effects can bring environmental gains, for example, when car-sharing reduces the need for private car ownership. However, not all substitutions are beneficial. For instance, car-sharing might replace more sustainable alternatives like cycling or public transport, ultimately increasing environmental impact.

Material aspects and market dynamics

Circular practices directly affect how materials are used, whether they're in products, virgin materials from extraction, or materials recovered from waste. Since these practices change material usage patterns, they also influence market quantities and prices. Here weexamine the direct impact of circular strategies on material markets, identifying three possible effects.

1.    Reduced Material Demand

Companies positioned in the value chain as providers of circular goods and purchasers of materials can adopt circular practices like efficient design, in-house reuse, and sharing, which can reduce material requirements. When multiple companies implement such practices, this creates reduced demand at the market level, causing material prices to drop. Lower prices make materials cheaper for everyone, potentially encouraging other businesses to use more materials than they otherwise would have. This price-driven increase in consumption partially offsets the original material savings from circular practices, creating a rebound effect where total material consumption decreases less than expected. Despite this rebound, overall material consumption still decreases compared to the scenario without circular practices, but the environmental benefits are smaller than initially anticipated.

2.     Increased Material Supply

Companies positioned as suppliers of secondary goods implement circular practices by providing recycled materials or reused products to the market. When these materials and goods, which would otherwise be discarded, are reintroduced into the marketplace, they increase the total supply of available materials. This increased supply drives prices down, making materials more affordable across the market, which under normal conditions leads to higher overall consumption and potentially increases total material use rather than reducing it. The key to avoiding this increase in resource use lies in achieving a strong substitution effect, where recycled materials replace virgin materials rather than simply adding to the total available supply.

3.     Increased Secondary Material Demand

Companies integrating recycled materials or refurbished goods into their production processes contribute to greater demand for circular resources. This demand can raise prices, further incentivising the collection and processing of waste materials and limiting the increase in consumption. What is essential, again, is whether this increased consumption of circular goods replaces the demand for non-circular goods, the substitution effect.

4.     Substitution effect

For circular practices to truly help the environment, recycled and reused materials must replace new (virgin) materials and products. Whether this happens depends on how well circular options perform in terms of price and quality. In incomplete substitution scenarios, increased demand for circular inputs doesn't fully offset the reduction in demand for non-circular inputs, leading to higher total material consumption. This often occurs in down-cycling situations where recycled materials have lower quality or functionality than virgin alternatives. Conversely, over-complete substitution occurs when one circular input can replace multiple virgin inputs, potentially, such as sharing systems where one shared item replaces numerous individual purchases. Companies can maximise environmental benefits by designing circular solutions that achieve over-complete substitution wherever possible.

Resource consumption of circular practices

Implementing circular practices requires businesses to account for resource requirements and broader ripple effects across their value chains. At the company level, circular practices require some additional specific material and energy resources. For example, producing thinner packaging may require new machinery, sharing systems need digital infrastructure, and recycling involves energy consumption and transportation costs.

In particular, the value chain ripple effect includes how customers and downstream partners require resources to access or consume circular products or services. For instance, if customers spend additional time and resources accessing circular options (like driving further to zero-waste stores), these factors can offset intended resource savings.

The key for companies is to ensure that circular products deliver a lower per-unit resource impact than non-circular products when all resources are considered. This requires revisiting the issue of substitution, that is, understanding whether circular goods can substitute for conventional products.