Instinctif Partners Public Policy

November 5, 2019

Climate Change and the Circular Economy – What next for the European Union?


What is the Circular Economy?

The impact of climate change on our environment is undeniable. Its effects on societies across the globe are becoming more and more visible. For the past several years, scientists and environmentalists have been warning policymakers they need to take urgent action to reduce the risks of climate change and to introduce measures that mitigate its effects. Awareness on climate issues has increased exponentially and calls for action have become commonplace across nearly all strata of society.

The European Union has implemented a variety of measures to curb pollution and reduce waste and the European Commission has announced a vision of a grand European Green Deal. In order to truly achieve sustainable development, however, drastic changes to daily economic routines need to fall in line with vital principles such as the circular economy and climate neutrality are vital. Those proposed changes will be the subject of intense lobbying in Brussels for the next several years.

The term circular economy has been the talk of the town for the past few years and is frequently used by EU and national policymakers, industry and journalists alike. But what do we actually mean by the circular economy? This concept is based on shifting away from the traditional linear economic processes of extracting natural resources, producing goods and disposing of the subsequent waste. The circular economy aims to ensure that product lifecycles are extended by reusing, redesigning, remanufacturing and recycling. It endorses the notion that almost all waste, including CO2, can be effectively transformed into a resource—the question is at what price? At its core, the circular economy aims to decouple economic activity from the end use of finite resources and to design waste out of the production system. Adopting this circular business model should provide the basis for sustainable product development and future economic growth while contributing to positive societal benefits.

What this means in practice is that the industry will have to rethink material and product design and adopt new and innovative business models, while policymakers will be tasked with establishing the right business conditions for the transition to this new economic model to be successful. The over-extraction of natural resources during past decades, greater awareness of the effects of waste on the natural environment and human health and the urgent need to mitigate climate change are factors accelerating the development of novel ways of balancing economic development and environmental protection. The circular economy is one of the solutions.

European Commission’s Circular Economy Action Plan

The European Commission adopted an Action Plan on the Circular Economy in 2015. It aims to accelerate Europe’s transition towards a circular economy, boost its global competitiveness, promote sustainable economic growth and generate new jobs. The Action Plan lays out a number of measures ranging from those addressing production and consumptions aspects to better waste management practices and the establishment of more efficient and attractive markets for secondary raw materials. It also promotes further close cooperation among Member States, regions and municipalities, businesses, research bodies, citizens and any other stakeholders potentially involved in the circular economy.

As part of the Action Plan, in July 2018, the European Commission published its Circular Economy package, which saw the adoption of four revised Directives, including the Revised Landfill Directive, the Revised Waste Framework Directive and the Revised Packaging and Packaging Waste Directive. These revisions set out new, more ambitious waste targets and shifted the focus to more effective recycling rather than simply recovery. These actions by the European Commission place even more impetus on waste reduction and on the importance of adopting the circular economy model, while at the same time highlighting and boosting the ongoing efforts aimed at modernising Europe’s industrial base and restoring its natural capital. The European regulatory framework will continue to evolve on this basis and further legislative proposals are to be expected even as more Member States adopt national strategies identifying the measures to be implemented in order to reach the established targets domestically.

European Green Deal

In her political guidelines for the next Commission 2019-2024, European Commission President-elect Ursula von der Leyen put forward the idea of a European Green Deal as her main priority. This ambitious plan revolves around the vision of making Europe the first climate-neutral continent in the world. The new Commission will publish its proposal on how to achieve this within 100 days of taking office and will include the first European Climate Law, which will essentially translate climate-neutrality targets into law. The Commission will also propose the extension of the Emissions Trading Scheme to cover the maritime sector and to systematically reduce free allowances allocated to airlines, possibly also extending the scheme to cover traffic and construction.

Ms von der Leyen also announced that she plans to introduce a Carbon Border Tax to ensure a level-playing for companies and to avoid carbon leakage. There are also plans to review the Energy Tax Directive, which would directly affect the energy and utilities sectors, and possibly other sectors that are not currently covered by the Directive; such as the transport sector. These ambitions require significant changes to both legislation and practices and therefore cannot be adopted without adequate transition. Europe and its industrial base will need to invest heavily in research and innovation and to redesign the economy from its core. Europe will also need to revisit its industrial policy and try to become a leader in technology-based innovation. The coming years will be crucial in shaping the future of Europe’s economy and its political position in the world.

Who will be affected?

The challenges and opportunities that await will have a direct impact on a number of different industries and sectors, all with their specific strengths and complexities. The energy sector will be one of the sectors mostly impacted by upcoming legislation and with ripple effects to utility providers and energy-intensive manufacturing industries. On the other hand, the renewable energy sector is another area that might also be directly or indirectly impacted by changes to the current European energy tax model. But these will not be the only areas experiencing change.

The chemicals industry, which supplies a huge variety of consumer products and includes plastics production, will also have to continue to adapt and evolve in order to increase the circularity of its processes and reduce its waste generated. Other industries which will have to face changes to their waste reduction and recycling rules include the retail sector, the textile and clothing industry, food and agriculture, iron and steel and the transport sector including aviation and shipping. The landscape of European industry is set to change, and today’s decisions will shape tomorrow’s future.

How can we help

Adopting a circular economy business model and striving for climate neutrality are indisputably significant challenges to industries of all stripes and may be seen as hurdles to economic expansion and profitability. But the circular economy and European Green Deal would also create new opportunities for companies to diversify their operations and access new markets while reducing their environmental impact. The coming years will see ambitious regulatory, economic and cultural changes. In order to thrive within this dynamic context, it is imperative that companies and non-EU governments at least monitor political and legislative discussions and decisions happening in Brussels in real time.

Many will also feel the need to weigh in on the EU’s proposals before they become law, influencing the discussion and subsequent outcome. This can be done by formulating evidence-based and technical arguments and positions while strategically lobbying the relevant policymakers and other interested stakeholders. Making sure your voice is heard demands a tailor-made, effective communications strategy. Well-structured and targeted campaigns can go a long way in shaping future policies. In this current dynamic environment, being proactive is less a choice than a necessity.