How Circular Economy Innovation Can Backfire on the Environment: Quantifying the Rebound Effect of the Textiles and Clothing Sector

Yerushalmi, Erez and Saha, Krishnendu (2025) How Circular Economy Innovation Can Backfire on the Environment: Quantifying the Rebound Effect of the Textiles and Clothing Sector. Business Strategy and the Environment. ISSN 0964-4733

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Abstract

Circular economy ( CE ) is championed as a sustainability solution, promoting reuse, recycling and resource efficiency to reduce environmental harm. However, CE innovations can trigger a rebound effect (RE), where lower costs stimulate higher consumption and production, paradoxically negating sustainability gains. This study applies a multi‐region, multi‐sector dynamic computable general equilibrium (DCGE) model to quantify the rebound effect triggered by CE innovation in the textile and clothing (TC) sector, the second most polluting industry. Our findings reveal a 155% rebound backfire, showing that CE innovations in the TC sector may exacerbate rather than mitigate environmental pressures. This challenges the assumption that CE alone can drive sustainability and underscores the need for complementary policies. As an extension, we look at complementary policies to ensure that CE strategies deliver genuine sustainability benefits. One explored policy is a uniform Pigouvian tax on TC production whereby we quantify that a minimum rate of 1.25% is required to curb the RE. However, effective implementation requires targeted regulatory interventions that also account for socio‐economic trade‐offs, particularly in low‐income countries. Achieving genuine sustainability will require degrowth‐informed policies that explicitly target reductions in production and consumption to suppress the systemic drivers of rebound effects in the TC sector.

Item Type:	Article
Identification Number:	10.1002/bse.70135
Dates:	Date Event 29 July 2025 Accepted 11 August 2025 Published Online
Uncontrolled Keywords:	Circular Economy, Innovation, Rebound Effect, Computable General Equilibrium (CGE), Degrowth, Textile and Clothing Sector
Subjects:	CAH15 - social sciences > CAH15-02 - economics > CAH15-02-01 - economics
Divisions:	Business School > Accountancy, Finance and Economics Business School > Accountancy, Finance and Economics > Centre for Accountancy Finance and Economics
Depositing User:	Gemma Tonks
Date Deposited:	19 Aug 2025 13:20
Last Modified:	19 Aug 2025 13:20
URI:	https://www.open-access.bcu.ac.uk/id/eprint/16601

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