Introduction

As cities continue to grow, so do the challenges they face, from increasing waste and resource consumption to rising carbon emissions and environmental degradation. Traditional economic models based on extraction, consumption, and disposal are no longer sustainable in this urban context.

This is where the circular economy offers a new path forward. By rethinking how we design, use, and dispose of materials, the circular economy keeps products and resources in use for as long as possible, reducing waste and environmental impact. In urban settings, this model can significantly reduce pressure on infrastructure, lower emissions, and improve quality of life.

Digital technologies, such as sensors, data platforms, AI, and blockchain, are emerging as powerful tools to help cities implement circular practices more efficiently. These innovations make it possible to track materials, optimize systems, and engage citizens in more sustainable ways of living.

This article explores how digital solutions can support the circular economy in cities, highlights real-world examples, and examines key challenges, opportunities, and future trends driving this transformation.

Understanding the Circular Economy in Urban Settings

The circular economy is a system in which materials are continuously repurposed rather than discarded, and nature is actively restored. In this model, products and resources remain in circulation through maintenance, reuse, refurbishment, remanufacturing, recycling, and composting. By decoupling economic growth from resource consumption, this approach addresses climate change and other global environmental challenges such as biodiversity loss, waste, and pollution (1).

In contrast, the traditional linear economy follows a “take-make-dispose” model, where raw materials are extracted, transformed into products, and ultimately discarded as waste once their use is complete. This approach depends on a constant influx of finite resources, leading to excessive waste generation, environmental degradation, and depletion of natural ecosystems. Unlike the circular economy, which prioritizes sustainability and resource efficiency, the linear model accelerates climate change, pollution, and biodiversity loss by encouraging short product lifecycles and overconsumption. By shifting away from this system toward a circular model, economies can reduce waste, lower carbon emissions, and create more resilient and sustainable industries.

Urban areas face significant challenges related to waste accumulation and high resource consumption due to their dense populations and rapid economic activities. In particular, cities generate vast amounts of solid waste, much of which ends up in landfills or incinerators, contributing to pollution and greenhouse gas emissions. Inefficient waste management systems further exacerbate the problem, leading to overflowing landfills, air and water contamination, and health hazards for residents. Additionally, cities are major consumers of natural resources, including energy, water, and raw materials, often relying on unsustainable supply chains that contribute to environmental degradation. The demand for construction materials, food, and consumer goods also places immense pressure on ecosystems, accelerating deforestation, water scarcity, and loss of biodiversity. Therefore, without a shift toward more sustainable resource management and circular economy principles, cities will continue to struggle with environmental and social consequences. (2) (3)

Despite these challenges, urban environments also offer unique opportunities for innovation in sustainable resource management. Cities serve as hubs for technological advancement, policy experimentation, and community-driven initiatives, making them ideal testing grounds for circular economy solutions. With high population density and concentrated economic activity, urban areas can implement large-scale waste reduction and recycling programs more efficiently than rural regions.

For example, smart waste management systems, powered by data analytics and the Internet of Things (IoT), can optimize collection routes, reduce landfill dependency, and encourage responsible consumption. Additionally, cities provide fertile ground for circular business models, such as sharing economies, repair networks, and urban farming, which help minimize waste and reduce resource strain. Strong policy frameworks, public-private partnerships, and engaged citizen participation further enable the development of sustainable infrastructure, from green buildings to decentralized renewable energy systems. By leveraging these advantages, cities have the potential to lead the transition toward a circular economy. (4) (5)

Digital Solutions Driving the Circular Economy

Digital technologies play a crucial role in advancing the circular economy by optimizing resource use, reducing waste, and improving efficiency. Below, we explore a few of such technologies:

1. The Internet of Things (IoT) and Intelligent Infrastructures – enable real-time monitoring and optimization of resource flows, helping cities and businesses reduce waste and improve efficiency. Smart sensors in waste bins, water systems, and energy grids can track usage patterns, automate processes, and support predictive maintenance, ensuring resources are used more sustainably. (6) (7)
2. Big Data and Artificial Intelligence (AI) – help predict resource demand, optimize waste management, and improve supply chain efficiency. By analyzing consumption patterns, AI can enhance recycling processes, automate sorting in waste facilities, and extend product lifecycles through predictive maintenance. (8) (9)
3. Blockchain for Enhanced Transparency – ensures secure and transparent tracking of materials throughout their lifecycle, promoting trust in recycling and reuse processes. It helps verify the origin of recycled materials, prevent greenwashing, and facilitate peer-to-peer exchanges in circular supply chains. (10) (11)
4. Digital Platforms and the Sharing Economy – enable peer-to-peer sharing, renting, and resale of goods, reducing the need for new production and minimizing waste. These platforms support circular business models, such as product-as-a-service and second-hand marketplaces, making resource use more efficient. (12) (13)
5. Alignment with Smart City Initiatives – circular economy solutions integrate seamlessly with smart city initiatives by leveraging digital tools to improve urban sustainability. Smart grids, intelligent transportation systems, and decentralized energy solutions help reduce waste, lower emissions, and create more efficient urban ecosystems. (14) (15)

Real-World applications in cities

Cities worldwide are leveraging digital technology to drive circular economy practices, reducing waste and improving resource efficiency.

Several cities have effectively integrated digital solutions to support circular initiatives. For example, Amsterdam (16) has adopted a circular city strategy using data-driven policies and digital platforms to promote material reuse in construction. Similarly, Singapore (17) employs IoT-based smart waste bins to optimize collection routes, reducing landfill waste and cutting emissions. In Copenhagen (18), AI-powered sorting facilities have significantly improved recycling efficiency by automatically categorizing waste materials.

Emerging technologies are being tested in various cities through pilot programs. In London (19), blockchain technology is being tested to track plastic waste and ensure proper recycling. Barcelona (20) is experimenting with digital twin technology to simulate circular resource flows and improve urban sustainability planning. Meanwhile, in San Francisco (21), a digital sharing platform has been launched to connect businesses with surplus materials to those who can repurpose them, reducing overall waste.

From these implementations, several best practices have emerged. Cities that successfully transition to a circular economy prioritize strong public-private partnerships, integrating digital tools with existing infrastructure. Data transparency and accessibility have also proven essential, ensuring that stakeholders can make informed decisions. Additionally, citizen engagement through digital platforms fosters awareness and participation, increasing the adoption of circular practices. Lastly, scalability remains a key challenge. Solutions that work in one city may need adaptation to different economic, cultural, or regulatory contexts. (22) (23)

Key Challenges for digitalisation in the context of the circular economy

While digital solutions offer immense potential for advancing the circular economy, several challenges must be addressed to ensure their effectiveness and widespread adoption. These challenges range from technical and regulatory hurdles to economic and social considerations.

Implementing digital solutions at scale comes with compatibility, data security, and scalability challenges. For example, many existing infrastructure systems are outdated and may not integrate seamlessly with new smart technologies, requiring costly upgrades. Additionally, ensuring data privacy and cybersecurity is crucial, as digital platforms collect and share vast amounts of information. Lastly, while some cities have successfully piloted digital circular solutions, scaling these innovations across different regions remains difficult due to varying economic and technical capacities. (24) (25)

Clear and supportive regulations, industry standards, and policies are essential for driving digital circular economy solutions. Without standardized guidelines for data sharing, material tracking, and digital waste management, implementation can become fragmented and ineffective. Governments must establish incentives and legal frameworks that encourage businesses and municipalities to invest in digitalisation strategies that support circular practices, such as tax benefits for companies using blockchain for sustainable supply chains, or stricter e-waste recycling regulations. (26) (27)

The success of digital circular economy initiatives depends on multi-stakeholder engagement. Governments, private enterprises, research institutions, and communities must work together to create effective and scalable solutions. Public-private partnerships can help fund and implement technologies, while community involvement ensures local engagement and participation. Without strong collaboration, efforts to transition toward a digital circular economy risk being isolated and ineffective. (28) (29)

While digital solutions have the potential to make circular practices more efficient, they also raise economic and social concerns. The cost of implementing smart waste management systems, AI-driven recycling plants, and blockchain-based tracking can be high, posing financial barriers for smaller cities and businesses. Additionally, unequal access to digital tools may create technological divides, where wealthier regions benefit from advancements while lower-income communities struggle to keep up. Ensuring that digital solutions remain accessible and inclusive is key to preventing disparities in circular economy adoption. (30) (31)

By addressing these challenges, policymakers, businesses, and communities can work toward a more seamless and inclusive transition to a digital circular economy.

Future trends in the digital circular economy

The future of the digital circular economy is shaped by a number of factors, such as emerging technologies, the need for scaling solutions across regions, and the increasing importance of innovative networks. As cities and businesses continue to adopt circular practices, several key trends are expected to drive further transformation.

New technologies are poised to revolutionize the digital circular economy. Digital twins, virtual replicas of physical assets, are gaining attention for their ability to simulate and optimize resource flows in real-time, helping cities manage waste, energy, and water systems more efficiently. Blockchain technology will continue to enhance transparency in supply chains, ensuring that materials are sourced responsibly and recycled effectively. Additionally, advancements in augmented reality (AR) and 3D printing will enable more efficient product design and repair, reducing the need for new materials. These technologies will work together to improve resource efficiency, reduce waste, and support circular economy practices. (32) (33)

While promising, scaling digital circular economy solutions across different regions remains a significant challenge. Solutions that work well in one city or industry may need to be adapted for others, considering local economic, social, and environmental conditions. To achieve broader adoption, technologies need to be affordable, customizable, and scalable to meet the specific needs of diverse regions. One important aspect will be creating modular systems that can be expanded or adjusted to suit different scales, from small communities to large metropolitan areas. Governments will also need to provide incentives and support for cities and businesses to transition to digital circular models, ensuring the financial and infrastructural conditions are right for large-scale implementation. (34) (35)

As the digital circular economy evolves, collaborative innovation networks will become increasingly vital. These networks, which involve partnerships between startups, universities, corporations and governments, can help to accelerate the development and implementation of new solutions. By sharing knowledge, resources, and research, these networks foster innovation and create solutions that are both effective and accessible. Open-source platforms and collaborative digital spaces will also enable communities to share best practices and learn from each other. Encouraging cross-sector partnerships and multi-disciplinary collaborations will be key to overcoming technological, financial, and social barriers to circular economy adoption. (36) (37)

In the coming years, these technologies, scalable solutions, and collaborative efforts will significantly shape the future of the digital circular economy, paving the way for a more sustainable and efficient global economy.

Conclusion

The transition to a circular economy in urban settings is no longer a distant vision; it is a necessary response to the environmental, social, and economic pressures cities face today. Digital technologies are accelerating this shift by making it possible to manage resources more intelligently, reduce waste at scale, and design more resilient and inclusive urban systems.

From IoT-enabled waste management to blockchain-powered supply chains, cities around the world are already experimenting with innovative tools to close resource loops and reduce their environmental footprint. Yet, this transformation is not without its challenges. Scaling these digital solutions requires strong policy support, robust infrastructure, inclusive access, and cross-sector collaboration.

Looking ahead, the future of the digital circular economy will be shaped by emerging technologies, adaptable frameworks, and the strength of collaborative networks. As urban areas continue to expand, they must also lead the way in pioneering sustainable, digitally driven circular practices that protect both people and the planet.

By investing in these innovations today, we can create smarter, cleaner, and more regenerative cities for generations to come.

This article was written by Enspire Science Ltd. for the InvestCEC project. For more information, please contact Andrea Ratkošová Motola: andrea.ratkosova@enspire-science.com

References and sources

1. The Ellen MacArthur Foundation:  What is circular economy? https://www.ellenmacarthurfoundation.org/topics/circular-economy-introduction/overview
2. International Finance Corporation – World Bank Group: The World has a Waste Problem. Here’s how to Fix It. https://www.ifc.org/en/blogs/2024/the-world-has-a-waste-problem#:~:text=With%20rising%20urbanization%2C%20rapid%20industrialization,increase%2070%20percent%20by%202050. 
3. The UN Environment Programme (UNEP): On World Environment Day, UNEP announces six new cities joining #GenerationRestoration https://www.unep.org/technical-highlight/world-environment-day-unep-announces-six-new-cities-joining
4. The Ellen MacArthur Foundation: Cities and the circular economy – deep divehttps://www.ellenmacarthurfoundation.org/cities-and-the-circular-economy-deep-dive
5. International Resource Panel (UNEP). (2018). The weight of cities: Resource requirements of future urbanization. United Nations Environment Programme. https://www.resourcepanel.org/reports/weight-cities
6. World Economic Forum: Intelligent waste management system facilitated by machine learning & IoT. https://uplink.weforum.org/uplink/s/uplink-contribution/a012o00001pU5ivAAC/intelligent-waste-management-system-facilitated-by-machine-learning-iot
7. The Ellen MacArthur Foundation: Internet of Things can help the circular economy https://www.ellenmacarthurfoundation.org/tech-enablers-series/part-3
8. European Parliament: The role of Artificial Intelligence in the European Green Deal https://www.europarl.europa.eu/RegData/etudes/STUD/2021/662906/IPOL_STU(2021)662906_EN.pdf
9. The World Economic Forum: How AI can solve manufacturing’s waste problem https://www.weforum.org/stories/2021/04/how-ai-can-cut-waste-in-manufacturing/
10. The Ellen MacArthur Foundation: Blockchain can facilitate the circular economy transitionhttps://www.ellenmacarthurfoundation.org/tech-enablers-series/part-2
11. The World Economic Forum: From source to stomach: How blockchain tracks food across the supply chain https://www.weforum.org/stories/2024/08/blockchain-food-supply-chain/
12. The European Environment Agency: Product lifespans – monitoring trends in Europe. https://www.eea.europa.eu/en/analysis/publications/product-lifespans-monitoring-trends
13. The Ellen MacArthur Foundation: The circular economy in detail. https://www.ellenmacarthurfoundation.org/the-circular-economy-in-detail-deep-dive
14. The International Telecommunication Union (ITU): U4SSC – A Guide to Circular Citieshttps://www.itu.int/hub/publication/t-tut-smartcity-2020-1/
15. The European Commission’s Smart Cities Marketplace: Circular Cities Solution Booklet https://smart-cities-marketplace.ec.europa.eu/news-and-events/news/2021/circular-cities-solution-booklet
16. The Ellen MacArthur Foundation: Shaping a sharing economy: Amsterdamhttps://www.ellenmacarthurfoundation.org/circular-examples/shaping-a-sharing-economy-amsterdam
17. The World Economic Forum: How is Singapore recycling wastewater to make it drinkable?https://www.weforum.org/stories/2022/11/singapore-wastewater-recycling-water-stressed/
18. The European Environment Agency: Artificial intelligence for environmental sustainability https://www.eea.europa.eu/articles/ai-waste-sorting
19. The European Commission: O1.A2.2 Blockchain Applications for Waste Managementhttps://blockwasteproject.eu/wp-content/uploads/2022/12/EN_O1.A2.2-Blockchain-Applications-for-Waste-Management.pdf
20. Politico: Barcelona bets on ‘digital twin’ as future of city planning https://www.politico.eu/article/barcelona-digital-twin-future-city-planning/
21. The Ellen MacArthur Foundation: Case Studies: San Franciscohttps://ellenmacarthurfoundation.org/topics/circular-economy-in-cities/case-studies/san-francisco
22. The Ellen MacArthur Foundation: Leading the circular economy transitionhttps://www.ellenmacarthurfoundation.org/articles/leading-the-circular-economy-transition
23. The World Economic Forum: Circular transformation of industries: Unlocking economic valuehttps://reports.weforum.org/docs/WEF_Circular_Transformation_of_Industries_2025.pdf
24. The World Economic Forum: How interoperability establishes blockchain’s utility and effectivenesshttps://www.weforum.org/stories/2020/05/blockchain-interoperability-utility-effectiveness/
25. Baldini, G. (2020). Security and privacy in Internet of Things-enabled smart cities: Challenges and future directions. European Commission, Joint Research Centre. https://www.researchgate.net/profile/Gianmarco-Baldini/publication/343618535_Security_and_Privacy_in_Internet_of_Things-Enabled_Smart_Cities_Challenges_and_Future_Directions/links/5f37b2faa6fdcccc43c9bef4/Security-and-Privacy-in-Internet-of-Things-Enabled-Smart-Cities-Challenges-and-Future-Directions.pdf
26. The European Environment Agency: Circular economy https://www.eea.europa.eu/en/topics/in-depth/circular-economy
27. The Ellen MacArthur Foundation: Universal circular economy policy goalshttps://www.ellenmacarthurfoundation.org/universal-policy-goals/overview
28. The Ellen MacArthur Foundation: Circular economy principleshttps://www.ellenmacarthurfoundation.org/circular-economy-principles
29. The World Economic Forum: How interoperability establishes blockchain’s utility and effectivenesshttps://www.weforum.org/stories/2020/05/blockchain-interoperability-utility-effectiveness/
30. The World Economic Forum: Circular transformation of industries: Unlocking economic value https://reports.weforum.org/docs/WEF_Circular_Transformation_of_Industries_2025.pdf
31. The United Nations Environment Programme (UNEP): Embracing the circular economy: A toolkit for policymakers https://www.unep.org/resources/report/embracing-circular-economy-toolkit-policymakers
32. The Ellen MacArthur Foundation: How technology can enable the circular economyhttps://www.ellenmacarthurfoundation.org/tech-enablers-series/part-1
33. The World Economic Forum: Sustainability start-ups solving circular economy challengeshttps://www.weforum.org/stories/2024/09/startups-shaping-the-circular-economy/
34. The European Commission: Inclusive Deployment of Blockchain for Supply Chains: Part 1 – Introduction https://www3.weforum.org/docs/WEF_Introduction_to_Blockchain_for_Supply_Chains.pdf
35. The World Economic Forum: How interoperability establishes blockchain’s utility and effectivenessemphasizes https://www.weforum.org/stories/2020/05/blockchain-interoperability-utility-effectiveness/
36. The Ellen MacArthur Foundation: Intelligent assets: Unlocking the circular economy potentialhttps://www.ellenmacarthurfoundation.org/intelligent-assets-unlocking-the-circular-economy-potential
37. The World Economic Forum: Companies need to be transparent and fair to be future-fit. Here’s why…. https://www.weforum.org/stories/2020/11/transparent-supply-chains-give-businesses-the-edge-this-is-why/