The European Commission’s New Circular Economy Action Plan

Updated: May 26, 2020

Released on the 11th of March 2020, the EU new Circular Economy Action Plan "For a cleaner and more competitive Europe" is an extension of the 2015 Action Plan for the Circular Economy. The 2015 document regarded the Circular Economy as a tool to achieve Europe's sustainable ambitions. However, this new strategy acknowledges the need for a holistic approach to the Circular Economy, which should lead to a deep-rooted, systemic change.

This 2020 Action Plan is one of the critical components of the EU's groundbreaking Green Deal. The first statement of the Commission's Communication embodies the renewed ambitions of the EU in environmental matters: "There is only one planet Earth, yet by 2050, the world will be consuming as if there were three". Europe, therefore, proposes a new way of producing and consuming, by reusing, recycling and repairing instead of merely discarding.

The main difference between the 2015 Plan and the 2020 Plan is the legislative dimension. Indeed, while the 2015 Circular Economy Action Plan was essentially incentive-based and aimed at encouraging companies to adopt circular principles, the 2020 version is mainly regulatory-based, with twenty propositions to either introduce new legal requirements or review existing directives and rules.

While the majority of the actions should be introduced in 2020 and 2021, their impacts on the ground will only be perceived after the Member States adopt the new rules, which can take up to five years. However, such a tremendous systemic change in our modes of production and consumption will have a significant impact on businesses. To get ahead of the curve, companies must take steps today.

The changes brought about by this plan will be cross-sectorial and will affect the entire European economy. However, seven sectors are identified as Key Product Value Chains that will require increased attention: namely electronics, batteries, packaging, plastics, textiles, construction and food. To empower consumers and ensure a sustainable mode of production and consumption that allows for reuse and recycling of materials, the Commission will introduce regulatory measures for each of these sectors. Further, for the electronics industry, the EU is set to present the right to repair.

These regulatory changes in the way companies operate their production will also be accompanied by changes in the way they can raise funds. Indeed, the Commission will also mainstream circular economy objectives in the context of the rules on non-financial reporting, and initiatives on sustainable corporate governance and environmental accounting. It means that financial organisations will have to change their criteria for delivering funds to companies, assessing the circularity potential of their product design and manufacturing operations.

Although a majority of the changes brought about by this new strategy are set to be received as warmly as Achilles received the arrow that pierced his heel, it should be highlighted that several opportunities will arise. For instance, the circular economy transition will be supported through the Skills Agenda, the forthcoming Action Plan for Social Economy, the Pact for Skills, the European Social Fund Plus, the Cohesion Policy funds, the Just transition Mechanism and through urban initiatives. These mechanisms will provide funding opportunity to support the transition to a circular economy financially, re-skilling opportunities to support the workforce's transition to a circular economy effectively, and most likely advised to support the growth to circular product design.

So at the end of the day, the question remains: how can companies use this large-scale, deep-rooted change as an opportunity instead of another hurdle in the race for growth?

The European Commission does provide an answer to this question in the first few paragraphs of the Communication on the Circular Economy Action Plan: innovative models based on a closer relationship with customers, mass customisation, the sharing and collaborative economy, and powered by digital technologies, such as the internet of things, big data, block-chain and artificial intelligence, will not only accelerate circularity but also the dematerialisation of our economy and make Europe less dependent on primary materials.

The adoption of digital technologies can reduce the need for primary materials. Moving away from the use of primary raw materials, towards secondary recycled materials can also shelter manufacturers from price volatility and price increases due to the exhaustion of natural resources. A big challenge will, however, come on the design front, as up to 80% of products' environmental impacts are determined at the design phase. The innovative business models mentioned above will have to take into account the decrease of product obsolescence and the accrued rates of repair.

Only through a wide-scale uptake of technological innovations can businesses truly position themselves ahead of the environmental curve. These technologies can align the compliance requirements, sustainability performance and profitability. In a world where all these components will become increasingly pressurising, technology will more than likely be the answer to the new age-old question, how do we break down the sustainable walls without getting hurt?

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