Policy design for the circular economy rebound: A system dynamics approach to green transitions in product life extension models

Rebound effects (REs) present a critical challenge to the success of green transitions. These effects occur when sustainability-oriented actions unintentionally drive additional economic activity due to cost reductions, behavioral shifts, and systemic interactions, thereby diminishing their intended environmental benefits. While extensively studied in other contexts, REs associated with circular economy (CE) transitions remain underexplored in terms of quantitative analysis and proactive mitigation. The present study bridges this gap by developing a simulation model capturing the complex dynamics of CEs, with a specific focus on product life extension business models. The model is formulated based on the system dynamics framework, wherein RE mechanisms are depicted as secondary feedback structures emanating from circular activities. To validate, a circular fashion case study was used, where it was found that 52.27 % of potential emission savings could be lost due to triggers such as increased consumer purchasing power, savings in production time, and moral licensing tendencies. Risk factors were identified, including the ability of recycled products to displace brand-new counterparts, sensitivity of consumers to discounts, willingness to leverage savings, and environmental cognition. Simulation of proposed interventions demonstrated the effectiveness of targeted eco-innovation, environmental literacy programs, and sufficiency policies in mitigating these effects, highlighting the need for a holistic approach to establishing the net benefit of circular systems.