We spoke with Prof. Dr.-Ing. Stephan Ramesohl, co-director of the Digital Transformation Research Unit at the Wuppertal Institute for Climate, Environment and Energy gGmbH, about what businesses need to make this happen and how they stand to benefit.
The circular economy focuses on two areas: resource value creation and product value creation. Preserving resource value creation means: Once resources have been extracted from nature, we must ensure that we handle them as carefully as possible. This is especially true when these resources are processed into products at great expense. So it’s not just about keeping things in a cycle, but about preserving the value we derive from the resources for as long as possible. In this way, we also increase product value creation – that is, the difference between a product’s sales revenue and the intermediate inputs used to produce it.
The challenge lies in the fact that, in our economic systems, we have become accustomed to acquiring resources too cheaply. That is why there are still no established economic incentives to reuse processed resources, i. e., the products themselves. This is due, among other things, to the fact that environmental costs or associated risks are not factored into prices. This is precisely what the circular economy aims to change. That is why the circular economy is not just a technical approach, but a complete paradigm shift in how our economic systems and industrial societies are organized.
From a balance sheet perspective, we observe that global resource consumption continues to rise. This trend shows no signs of abating. This is partly due to the catch-up effects of developing countries, but it also applies to our industrial societies, where we still consume too many primary resources. We see that for certain material flows – paper or glass, for example – we now have significant recycling rates. Overall, however, the share of these circular materials is still in the 10 to 15 percent range. All in all: The first steps have been taken. However, we are still very far from a true circular economy, and current traditional economic trends, such as growth and ever-increasing consumption of natural resources, run counter to this goal. The transition to a circular economy, as a transformation of the economic system as a whole, has yet to take place.
The Circular Economy Strategy, which was adopted by the previous traffic-light coalition government at the end of 2024, but was subsequently incorporated into the coalition agreement and thus the new government’s work program, is a milestone. It is, in fact, the first circular economy strategy to address the issue holistically and build on the ten R-strategies. We need this broad mix of strategies if we want to design virtually all of our societal and industrial material flows – from the house to the T-shirt to the yogurt cup – in the spirit of a circular economy. There is no one-size-fits-all solution; instead, we must always develop material flow- and context-specific strategies. In doing so, we must place a strong emphasis on the so-called upper R-strategies, such as reuse, repair, and reprocessing, which aim to preserve product value. Incidentally, the coalition agreement also includes a digitalization initiative to close material cycles. The German federal government is currently preparing to implement this project, which aims to establish framework conditions and provide concrete incentives for leveraging digitalization in the circular economy.
Sustainability in the 21st century takes place in a digital world, therefore digitalization is an indispensable tool. We need data and information to make decisions and create solutions. This means that the circular economy must also be a digital circular economy. At the same time, it is absolutely true that digitalization itself is an area with environmental impacts. It is not purely virtual but has a physical footprint. And this is not just about the efficiency of electricity-based digital technologies or their decarbonization through the use of renewable energy, but about the actual volume of usage. Digitalization is a growth sector, and the efficiency gains are more than offset by this growth. This applies to energy demand, but especially to the resources contained in electronics. As things stand today, these cannot be reused, or only as a very small part of the total. This results in the consumption of resources that mostly come from geopolitically unstable regions with very precarious ecological and social extraction conditions. So if we don’t have technical solutions to avoid these problems, the approach must be to think very carefully about what we use digitalization for. This also includes the sensible use of AI. We ask the questions »What for?« and »What not for?« far too rarely.
A smart, economical, and targeted use of digitalization is the only way to limit resource consumption. To do this, we need to better understand the areas where digitalization can help. This could involve data-driven engineering for recycling and disassembly-friendly products, or resource-efficient process control in manufacturing. It could also include circular business models such as »Product-as-a-Service« or supporting consumers with apps to help them choose the right products. Digital tools can be used throughout the circular economy. However, it is also crucial that the data for these tools is available. This means it is not just about creating projects for individual applications, but about understanding that we must build a digital circular economy as a networked system.
The Circular Economy Information Ecosystem (CEIS) is a working concept that addresses precisely this issue of prerequisites for a digital circular economy. It describes the sum of technologies, infrastructures, processes, and rules that make data and information available in the circular economy. You could say it’s about the internet of the circular economy. We need an ecosystem that connects different actors, data spaces, and technologies. The digital product passport, for example, will play a role here. Importantly: This ecosystem is not a product or a centralized operating system. It is not monolithic, but rather an open system of systems. It belongs to no one; it is not proprietary, but rather the result of a process in which diverse approaches and activities of the circular economy converge. By definition, it is decentralized – and thus autonomous and dynamic – but it must be interoperable. This interoperability, as a prerequisite for success, must be organized by the stakeholders in the circular economy. That is why I believe it is important to also address the CEIS within the framework of the digitalization initiative already mentioned.
As the foundation of the circular economy, however, the CEIS is naturally not limited to Germany. After all, in a global economy interconnected by supply chains and data flows, we ultimately need a global circular economy. To achieve this, we must use local, regional, national, or European approaches to scale up these efforts. Take, for example, the Manufacturing-X project family, in which the Fraunhofer IPK is also involved. These are crucial building blocks that must be scaled up and internationalized. That is why I would also expect a digitalization initiative to cover the topic of international cooperation. Here, we as Germans, but definitely also as Europeans, have something to offer. My impression is that this is being observed with great interest in other regions of the world, including China, and that there is also a willingness there to engage in dialogue.
You’re right. The circular economy, much like climate neutrality for industrial societies, is a decades-long project. Here, too, 2050 is an important milestone, and here, too, there is a mix of very short-term and very long-term approaches. In the very short term, if we look back at the R-strategies, it starts with ourselves. With the classic »Refuse« – that is, saying no: Do I really need that next fast-fashion T-shirt? Some areas of consumption have grown so rapidly that they no longer have anything to do with basic needs. We can quickly achieve an impact through small decisions here and now – and usually without any loss of quality of life. With a strategy like Reduce, we have the opportunity to ask how much packaging material and which packaging designs are actually technically necessary. Can single-material packaging be used instead of composite packaging because it is easier to recycle? That can be resolved very quickly.
However, I believe it will still take some time before we fully transition to a digital R-Economy, in which the major sources of value creation shift from manufacturing to services, such as repair and professional industrial remanufacturing. Machines and products would then return to the manufacturer, where they are remanufactured or disassembled and reused as parts. The keyword here is »remanufacturing«. Many companies are working on this. But it will still take time for ecosystems to form with all the necessary partners. Yet this is where the great opportunity ultimately lies, not least because we can partially replace the import of raw materials from risky geopolitical regions with domestic value creation through services and remanufacturing. And in my view, that is a very smart and future-viable industrial policy.
First of all: Transformation means change. This applies to the energy transition just as much as it does now to the circular economy and the management of resources. On the one hand, manufacturing companies have the opportunity to look at simple sourcing: Which raw materials from which sources with which life cycle assessments am I using? And what role can recycled materials, i.e., secondary raw materials, play here? This varies greatly from material flow to material flow depending on material requirements. So this is not something where one-size-fits-all solutions can be prescribed. But there are many opportunities that must be sought out and tapped into on an individual basis.
An example: The Schwarz Group, best known as a food retailer through its Kauf-land and Lidl stores, is one of the largest packaging manufacturers because it is also a major food producer. However, through its subsidiary PreZero, it is also one of the largest players in the waste management and recycling sector, partly because this allows it to retain access to certain packaging materials. This is a strategic shift that opens up new possibilities. In production, I can avoid losses, increase efficiency, and reduce waste in the spirit of traditional optimization. In product design, I can design for easy disassembly. If I stay in contact with the product, I also stay in contact with the customer. Circular business models, where, for example, I don’t sell but lease and engage in value creation through services, are a real alternative for manufacturers.
Which approaches work can only be answered on a case-by-case basis, from industry to industry and from company to company. The pie is changing, and it will certainly be redistributed, but it will not disappear. That is the great challenge of structural transformation. Ultimately, the ability to adapt to this transformation is what distinguishes successful entrepreneurship. After all, the economy has changed multiple times in the several hundred years since the invention of the steam engine, and that is about to happen again.
is Co-Head of the Digital Transformation Research Unit in the Division
Circular Economy at the Wuppertal Institute. He holds a degree in Industrial Engineering from Karlsruhe University of Applied Sciences and a degree in Economics from Aix-Marseille University in France. In 2000, he earned his Ph.D. (Dr.-Ing.) from the Specialist Department of Electrical Engineering / Electrical Energy Systems at Paderborn University. Ramesohl worked at the Wuppertal Institute from 1994 to 2007, most recently as deputy head of the research group on Future Energy and Mobility Structures and as head of the focus project on New Energy Sources and Fuels. This was followed by twelve years in the energy industry before he returned to the Wuppertal Institute in 2019, where he remains active to this day. His work focuses on digitalization and sustainability, industrial transformation, and innovation management.
Fraunhofer Institute for Production Systems and Design Technology