In March of 2020, the European Commission launched the New Circular Economy Action Plan, as a major milestone within the European Green Deal. With this initiative, Europe aims to support sustainable economic growth. This transition towards a circular economy offers a wealth of opportunities for entrepreneurs, businesses and investors. The following article takes a closer look at European Union (EU) measures related to a circular economy, life cycles of products, sustainable consumption and related challenges.
What does Circular Economy mean?
A circular economy aims for sustainable economic growth without wasting resources. It creates economic, social and natural capital while limiting waste and pollution. This is done by reusing products and material in the most efficient manner to regenerate natural systems. The use of sustainable energy plays a crucial role in this development. A circular economy does not only rely on large corporations but equally on small and medium enterprises as well as the involvement of individual consumers and policy incentives from the public sector. A circular economy aims for long term results while increasing job opportunities, economic growth and a more diversified economy. For example, experts predict that in Africa, a 2,2 to 2,7% increase in jobs is possible when green energy is promoted. Especially transparency and traceability about materials and supply chains is important to secure a sustainable circular economy.
According to the European Commission, the following segments have the highest potential to generate sustainable changes as they use the most resources: electronics including batteries, vehicles, packaging, textiles, construction, food and water.
Even though green sustainable alternatives exist, the demand for raw material and resources is still increasing. Therefore, policy changes and financial incentives have to be put into place to motivate all participants to implement changes in their businesses and private consumption behaviour.
EU Initiatives for a Circular Economy
Overall, the EU has proposed 35 actions related to the goal of creating a circular economy. One measure has already been introduced in 2020. This is a proposal about a new regulatory framework for batteries.
For 2021, the EU further plans legislative proposals in the areas of sustainable product policy, sustainable consumer consumption support as well as mandatory green public procurement criteria and targets. They further plan to launch incentives for customers and businesses to return old devices, find ways to minimise waste and optimise waste transportation as well as implementing rules to avoid over packaging and microplastics. Additionally, the EU aims to propose a skill agenda and a corresponding social fund in order to support employees and employers in the transition towards a circular economy. All actions for a circular economy are closely linked and incorporated into activities for climate change mitigation. By 2023, the EU has planned to develop a regulatory framework for the certification of carbon removals.
The circular economy action plan of the EU further focuses on global cooperation. In 2020, they started a dialog to reach a global consensus about plastics and by 2021 they aim to create a global circular economy alliance. The EU also has efforts to reach a global agreement about natural resources. On a smaller scale, in regional and national trade agreements the circular economy goals should be inserted and executed correspondingly.
Lastly, next to incentives, regulatory and policy frameworks, another crucial aspect of the EU’s actions is the process of monitoring all developments. This means monitoring consumption behaviour, resource usage, materials as well as global supply chains.
Challenges of a Circular Economy
As the EU defines legal standards for the products and industries mentioned above, they should adapt their policies in order for businesses to follow rules that will promote a circular economy. Nevertheless, experts claim that it is difficult for SMEs, especially in developing countries, to comply with these new regulations, as the risk and investment necessary to meet requirements for suppliers is high. Therefore, the EU is creating measures to support these companies in complying with the new regulations. Additionally, they are currently developing a system of incentives awarding businesses that are leading the circular transition.
Another challenge is not only the regulatory and legal framework in regard to taxes for example but also the international cooperation. A circular economy is only possible as all countries work together on a sustainable approach towards doing business and producing products. However, the social and economic divide between and within different countries all over the world makes it difficult to implement all the changes necessary to generate a circular sustainable economy.
Necessary steps for a transition towards a circular economy
The following steps are crucial for ensuring a shift from a linear to a circular economy:
- Local policy makers have to make coherence policy changes supporting a circular economy. This step is about raising awareness and increasing knowledge and thereby convincing decision makers that more guidelines are needed to reach a circular economy. These policy frameworks have to be coherent for all industries from finance to taxation to manufacturing. Policy makers are further responsible to ensure that the green transition is fair and just to all workers among the supply chains, therefore, in some sectors in this regard adjustments to labor laws might be necessary. Overall, it is important to reduce trade barriers for circular value chains and mainstream sustainability into trade agreements.
- Additionally, fiscal incentives and changing IP laws rewarding sustainable innovation are necessary. This improves the policy and business environment by promoting sustainable markets.
- Next, governments should work closely with banks to finance sustainable actions. It is crucial to mobilise finance and access to investment to scale up sustainable projects. In order to reach a circular economy the public and private sector have to collaborate closely. Small companies especially have to be supported as they play a major part in global supply chains. Overall, 7 out of 10 jobs all over the globe are in SMEs. For them, a transition to sustainable business will deliver greater efficiency and a reduction of costs in the long run. This is done by measures such as new product design, smart packaging and sustainable logistics. In the industries of cement, aluminium, food and transportation, efficiency gains of 70% in the future are possible according to economic experts.
- Lastly, but most importantly, skills are the key determinant in ensuring a transition towards a circular economy as this new economy is not a theoretical concept but needs to be implemented in the practical context of businesses. These include basic entrepreneurial skills as well as industry-specific skill sets in order to support change from within the economic sectors. Therefore, academia, consumers, employees, investors, governmental institutions and investors have to collaborate to make the changes necessary for a shift from a linear to a circular economy.
Climate change mitigation and green investment have gained crucial importance in the German economy as more social start-ups are setting up their businesses in these fields. Read this article if you are interested in social entrepreneurship in Germany. Another important topic in this context is renewable energy. To find out more about the sustainable energy sector in Germany read this article.
Are you an entrepreneur looking to set up a renewable energy company in Europe and need legal consultation. Or do you have legal questions regarding new EU legislation about material requirements, transportation or supply chains?
Centurion Plus offers you access to highly qualified lawyers, experienced in the energy sector and other legal areas related to a circular economy.
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