The circular economy in fashion, promoting recycling and sustainable practices, may inadvertently increase textile consumption. Innovations intended to reduce waste can lead to a "backfire rebound effect," where efficiency gains decrease costs, prompting higher production and consumption. Research shows a global average rebound effect of 1.6, indicating that for every 1% improvement in sustainability, new textile production increases by 0.6%. To combat this, strategies like a Pigouvian tax on production can help mitigate environmental harm. Policies need to be region-specific, considering the economic impacts on countries reliant on textile exports.