Unequal Gains from Circular Economy Adoption: Firm-Size Heterogeneity in Cost Effects across Europe

The modern economy has long operated on a simple, linear logic: take raw materials from the earth, make them into products, use them, and then throw them away. This "take-make-dispose" model is increasingly seen as unsustainable, straining the planet's resources and filling landfills. In response, a different approach has emerged called the circular economy. Instead of discarding items, this model aims to keep materials in use for as long as possible through repair, reuse, and recycling. It is a shift designed to separate economic growth from the consumption of new resources. For businesses, adopting these practices is often framed as a win-win: helping the environment while also saving money by using fewer resources. But while the idea is popular, the reality of whether it actually lowers costs for every type of company remains unclear. The transition requires investment, and the financial payoff might not look the same for a small workshop as it does for a massive factory.

A team of researchers set out to investigate this exact question, looking at how the adoption of circular practices affects the production costs of companies across Europe. They gathered data from over 36,000 firms in 27 countries, spanning a decade from 2012 to 2021. The researchers asked these businesses a straightforward question: did the resource-saving actions they took over the last two years make their production costs go up, go down, or stay the same? By analyzing these self-reported answers alongside the size of each company, they uncovered a nuanced picture. The study confirms that, on average, companies that adopt circular economy practices are more likely to report lower production costs. However, the size of the company changes the story significantly. While large companies are more likely to achieve substantial cost reductions overall, the smallest companies see the biggest immediate boost from adding just one new circular practice.

The researchers found that the relationship between adopting these practices and saving money follows a specific pattern. The biggest gains come early. When a company first starts saving energy, reducing waste, or using fewer materials, the cost savings are often immediate and significant. These are relatively simple steps that do not require massive overhauls. But as a company tries to adopt more and more circular practices, the extra money saved from each new step begins to shrink. This is because the later stages of the transition often involve expensive, complex changes, such as completely redesigning products or buying new machinery to recycle materials internally. These deep changes cost a lot of money upfront, and the financial return on each additional step is smaller than the return on the first few steps.

This pattern plays out differently depending on how big the company is. Large firms, with their deep pockets and vast production lines, are the most likely to report that their costs have gone down significantly. They have the resources to handle the heavy investments required for deep structural changes and can spread those costs over millions of units. In contrast, micro-firms, which employ fewer than ten people, face a different dynamic. While they are less likely to report massive, dramatic cost cuts overall, they are the most responsive to every single new practice they add. For a tiny business, even a small change like sorting waste more carefully or switching to a greener supplier can lead to a noticeable drop in expenses because they start from a less efficient baseline. A large company, which is already highly efficient, might not see a huge jump in savings from that same small change.

The study also looked at the difference between simple efficiency improvements and major structural transformations. The findings suggest that the cost savings most companies enjoy come from the incremental, efficiency-focused steps. These are the low-cost actions that improve how a company uses its current resources. The more radical, structural changes, which involve redesigning supply chains or products, show a weaker and more mixed relationship with immediate cost savings. This distinction helps explain why the results vary so much across the business world. The economic benefits of the circular economy are not distributed evenly. Smaller companies gain the most from the early, accessible steps, while larger companies are better positioned to capture the substantial, long-term savings that come from the most difficult and expensive transformations.

Ultimately, the research clarifies that the circular economy is not a one-size-fits-all solution for cutting costs. It is a journey where the rewards depend heavily on where a company starts and how far it is willing to go. The data shows that while the path to circularity is generally profitable, the nature of the profit changes as a company grows and as its adoption of these practices deepens. For policymakers and business leaders, this means that supporting the transition requires different strategies for different sizes of companies. Small businesses need help with the initial, low-cost steps to get started, while larger firms may need support to navigate the complex, capital-intensive changes that come later. The circular economy offers real economic benefits, but understanding who gets what, and when, is essential for making the transition work for everyone.