1.4 Squaring the circle

At the same time, the environmental impacts of linear economic models are felt globally and often, primarily, in lower-income countries. Conversely, while the current distribution of material flows and stocks has global equity implications, material efficiency policies implemented by high-income countries will inevitably have repercussions beyond their borders.

This report proposes a policy framework to bridge the gap between envisioning and

implementing the circularity transition. Its main aim is to contribute to the development of reforms and investments accelerating CBMs and limiting linear ‘take-make-use-waste’ activities. The focus is on the EU and its MSs, with particular attention paid to Bulgaria, Croatia, Poland, and Romania (EU4). The EU is a frontrunner in the CE agenda and plays a global role in ‘exporting’ it, through both the sheer weight of the single market and its role as a global environmental standards maker. The report showcases the EU’s significant achievements as well as aspects to consider for accelerating the circularity transition, with a view to contributing to policy development inside the EU and sharing lessons with countries outside the bloc. The report therefore targets not only EU policy makers but also a global audience willing to learn from the EU’s experience.

This report is structured in six chapters, complemented by an annex with sectoral deep dives and focus sections dedicated to thematic issues.

Following this introduction, Chapter 2 gives an overview of the state of circularity in the EU. It shows that significant resource efficiency gains have been achieved over the past two decades and the EU has mainstreamed resource efficiency and CE principles into its policy. However, progress among MSs is uneven and needs to accelerate to contain the environmental impacts of Europe’s resource consumption.

The role of trade in making or breaking the circularity ambitions of the EU is introduced in Chapter 3. The chapter describes the impacts of the potentially widening gap in regulatory stringency between the EU and the rest of the world and provides recommendations on how possible negative effects can be overcome through trade and aid policy.

The role of the private sector in driving the transition is addressed in Chapter 4. While it is already an engine of CE innovation, the private sector is still confronted with barriers at different levels. If companies are to scale up CE-related investments, removing these barriers is the policy priority for governments.

Chapter 5 addresses the economics of the transition to a CE through a computable general equilibrium (CGE) modeling exercise. It shows that neither BAU nor limited measures will achieve substantial efficiency gains. However, a comprehensive suite of targeted policies can reduce Europe’s resource use at very little economic cost or in ways that are both growth and welfare enhancing, depending on how new fiscal revenues are used.

Chapter 6 proposes a policy framework for the circular transition, drawing on the preceding analysis. The framework is built on four key policy pillars (institutions, incentives, information, and financing) critical to addressing the barriers to accelerating Europe’s progress in achieving materials efficiency and circularity objectives.

The report is based on different methodological approaches. Most of the research is based on the analysis and elaboration of official data as well as desk research and a literature review, including a review of policies, strategies, and action plans. In addition, a survey has been conducted among key stakeholders in the CE in various EU MSs, the results of which are integrated into the different chapters. Results on the economics of circularity (Chapter 5) and partly of the trade implications (Chapter 3) are based on a unique global CGE exercise using the ‘environmental impact and sustainability applied general equilibrium’ (ENVISAGE) model. This model was calibrated on the extended Global Trade Analysis Project Circulatory Economy (GTAP-CE) database, which includes both primary and secondary activities for key materials. The geographical coverage of the modeling exercise included the 27 EU countries (EU-27), European Free Trade Association (EFTA) states (Iceland, Liechtenstein, Norway, and Switzerland), and the

The report does not aim to provide a comprehensive treatment of challenges and

potential solutions. The complexity of the circular transition and its systemwide nature cannot be easily covered within a single piece. The report does not cover all economic sectors. It does not delve into micro-level processes related to technology and engineering constraints and opportunities nor does it provide an exhaustive treatment of regulatory landscapes. Nonetheless, it provides insights on the direction of travel of the EU and its MSs and recommendations to accelerate the transition.

United Kingdom. In the rest of the report, the terms ‘EU’ and ‘Europe’ are used interchangeably unless otherwise stated explicitly.