This chapter discusses the role of regions and cities in managing the transition to a circular economy. While the circular economy is gaining momentum in regions and cities as a means to drive environmental, economic, and social sustainability, more investments and more effective governance are needed to upscale promising innovations. The chapter sheds light on some of the key drivers and barriers to the circular economy transition in regions and cities. It also identifies strategic approaches and tools that local and regional policy makers can use in transition domains crucial to the circular economy such as waste management, construction and demolition, land use and spatial planning, and food systems.
Managing Environmental and Energy Transitions for Regions and Cities
Abstract
While regions and cities go increasingly circular, more investment and more effective governance are needed to upscale promising innovations
The circular economy is gaining momentum as a means to combat climate change and contribute to environmental sustainability by tackling waste as a resource. Increasingly, with pressing megatrends such as demographic growth and urbanisation, regions and cities make also an economic and social case for the circular economy. New circular business models, based on waste prevention and resource efficiency create cost savings, increase turnover and create local jobs in various sectors. National and supranational strategies are also proving important impetus, as do global agendas such as the 2030 Agenda for Sustainable Development.
There is a distinctive role for urban, regional, and rural policy makers in the circular economy. Regions and cities can be promoters, facilitators and enablers of the transition to a circular economy. The transition to a circular and climate-neutral economy requires a system change across decision-takers and levels of governments. Co-ordination is needed to update regulation, allocate funds efficiently and develop information systems.
A number of circular economy policy initiatives are taking place in regions and cities. These are often linked to broader agendas related to green growth and regional development. Ongoing initiatives include strategies and long-term visions (e.g. Amsterdam, NL or Paris, France), roadmaps (e.g. Valladolid, Spain), programmes (e.g. Rotterdam, NL), and circular economy objectives as part of a broader set of policies on sustainability issues (e.g. Lisbon, Portugal and Flanders, Belgium). In addition, private sector and civil society initiatives help foster the transition to a circular economy.
Accelerating the transition to a circular economy and scaling it up requires removing several barriers. At the level of regions and cities, the challenges towards building a circular economy are less of technical nature but more related to economic and governance factors. These include building a holistic vision of the circular economy, and introducing a conducive legal framework and an aligned (multi-level) governance framework. For businesses, a lack of clear pricing signals and poorly developed markets of secondary materials are amongst the main issues.
Policy plays an important role in enabling or constraining the transition to a circular economy. The use of regulatory instruments has been central to waste disposal and pollution policies. Fiscal instruments have also been widely used when it comes to prolonging the lifecycle of materials in the economy. Green public procurement is widely recommended as an effective policy for providing a market for products and services with high environmental performance, but its potential remains underexploited. Innovation support schemes and collaboration platforms for the circular economy have been created and diffused by national and regional governments in many locations.
Monitoring approaches to follow the development of the circular economy still lags behind. Complex dynamics and multiple stakeholders make it difficult to monitor the transition appropriately and holistic monitoring frameworks at the level of regions and cities are not yet well developed.
The circular economy is a new socio-economic paradigm whereby resources and products are used for as long as possible and waste is minimised. It is one of the European Union’s key priorities as outlined in the European Green Deal (2019), setting an ambitious roadmap towards a climate-neutral and circular economy, raising opportunities and providing investment directions for a wide range of economic sectors. The new Circular Economy Action Plan (March 2020) has announced a comprehensive set of actions to accelerate the transition in Europe. Moreover, the circular economy has become central to the achievement of the SDGs and the Paris Agreement. In contrast to a linear economic system, the circular economy implies a transformational change in consumption and production, by designing out waste and pollution, preventing waste, putting resources back into environmental and economic systems, and postponing material losses through re-using goods and products for as long as possible. In recent years, the circular economy has increasingly gained popularity at both national and subnational levels and an increasing number of regions and cities are implementing initiatives that aim to turn them into sustainable circular systems.
Regions and cities are well-positioned to support and steer the transition to the circular economy. Regions and cities have responsibilities over policies directly linked to a circular economy, such as waste management, zoning and urban and regional planning. Moreover, they have the ability to create markets for circular products and services through public procurement, favourable framework conditions for industrial symbiosis, and can facilitate networks and hubs and enable local circular economy experiments and innovations. At the same time, they can empower citizens to help reducing waste by promoting sustainable consumption. With the support of public policies, a circular economy can become a new driver for economic, social and environmental sustainability in regions and cities. New circular business models, waste prevention, recycling, eco-design and similar measures create savings, increase turnover and create local jobs in various sectors. For example, London benefits from circular approaches applied to the built environment, food, textiles, electronic appliances and plastics are estimated at GBP 7 billion every year by 2036 (LWARB, n.d.[1]). In the Île-de-France, about 50 000 jobs linked to the circular economy are estimated to be created by 2030 (Mairie de Paris, 2017[2]).
The transition to a circular economy also presents challenges. Such challenges are, for example, linked to the uptake of new business models, adequate standards and laws, financial incentives, innovation, behavioural change, improved waste management, knowhow and administrative capacity, among others. The market for secondary material is poorly developed, while the cost of virgin material does not account for environmental costs (OECD, 2019[3]). Many instruments like carbon price, environmental tax and the polluter pay principle are still not widely and effectively implemented. In addition, the potential of green public procurement is not yet exploited and there are important cultural barriers, whereby society at large is very much oriented towards ownership rather than renting or sharing. Unlocking the potential of circular economy in regions and cities implies putting the necessary conditions in place to create incentives (legal, financial), stimulate innovation (technical, social, institutional) and generate information (data, knowledge, capacities) (OECD, 2020[4]).
The chapter draws from the OECD seminar series on “Managing Environmental and Energy Transition for Regions and Cities”, and in particular from the seminar entitled “Managing the Transition to a Circular Economy”. The chapter equally draws from the results of the OECD report on the Circular Economy in Cities and Regions. The main theoretical frameworks and regional case studies were identified in or inspired by the following publications:
Chapter 1 of this publication: “Managing Environmental and Energy Transition: A place-based Approach”.
OECD (2020), The Circular Economy in Cities and Regions: Synthesis Report.
Ekins (2019), “The Circular Economy: What, Why, How and Where”, Background Report for an OECD/EC Workshop Series on Managing Environmental and Energy Transitions for Regions and Cities, OECD, Paris, 5 July 2019.
Wijkman (2019), “Circular Economy in Cities requires a System Approach”, Background Report for an OECD/EC Workshop Series on Managing Environmental and Energy Transitions for Regions and Cities, OECD, Paris, 5 July 2019.
The circular economy is not a new concept. It was introduced in the economic literature in the sixties. The circular economy is a means of slowing depletion of natural resources, reducing environmental damage from the extraction and processing of virgin materials, and reducing pollution from the processing, use and end-of-life of materials (Ekins et al., 2019[5]). The main rationale behind the circular economy is the development of systems that go beyond linear “take-make-dispose” economic models. The circular economy aims at closed loops of materials and energy that maintain the value of resources in the economy while minimising waste. According to the 2019 Circularity Gap Report, less than 10% of the world is circular (Circle Economy, 2020[6]). However, awareness from citizenship, academia, science and policy makers has considerably increased and it has now become part of the political agenda, especially in the European Union (EU), a global leader in this area.
Cities provide important opportunities for a circular economy system due to their proximity of citizens, producers, retailers, and service providers and high human capital. More than half of the world population (54%) lives in metropolitan areas, which contain cities and their commuting zones (OECD/European Commission, 2020[7]). Between 2015-50 city populations are projected to grow by 50%, creating further pressures but also opportunities for more efficient resource use. Cities are responsible today for 70% of consumption-based emissions and about around two-thirds of global energy demand (IEA, 2016[8]). At the same time, around 90% of city dwellers in Europe are exposed to harmful levels of air pollution (EEA, 2019[9]). Congestion costs, mostly in cities, are estimated to be around 2-5% of global GDP annually. More than 90% of privately owned cars are parked most of the time and when on the road, only between one and two of five seats are used (Ellen MacArthur Foundation, 2015[10]). Waste management costs make up to 20% of municipal budgets (Wijkman et al., 2019[11]). Several urban policy levers such as urban planning, public procurement, and legislation and regulation have been identified to support the circular economy in cities. Examples of circular economy opportunities in core urban transition systems are buildings (e.g. designing buildings for resource efficiency and deconstruction), mobility (e.g. ride-sharing and reduced transport needs), and food (e.g. diet transition and food waste reduction). These approaches are discussed further below in this chapter and in Chapter 4 on managing environmental and energy transitions for cities.
Rural regions play an important role in the transition to a circular economy because they specialise in resource-based economic activity such as agriculture, forestry, fisheries, mining, and energy. Rural regions are connected to cities through flows of people, goods and services. 20% of the total OECD population lives in rural regions close to cities, which are defined as territories less than 60 minutes of driving time from urban centres. 6% live in remote rural regions (OECD, 2019[12]). Global primary materials use is projected to almost double in 2060 and the need to address unsustainable land-use practices is growing. Fossil fuel use and the production and use of iron and steel and construction materials lead to large energy-related emissions of greenhouse gases and air pollutants. Metals extraction and use have a wide range of environmental consequences, including toxic effects on biodiversity systems (OECD, 2019[3]). Rural households and firms also depend more on carbon-intensive road transport (Chapman, 2019[13]). The circular economy presents an opportunity for rural regions to overcome the challenges of reversing biodiversity declines and mitigating climate change, while producing sufficient food at the same time. By providing new jobs and income in rural areas, it can also foster economic development and fight rural depopulation. Examples of circular economy opportunities in rural areas are agro-food systems, moving towards a circular bioeconomy, and applying circularity in rural industries such as mining and forestry. These approaches are discussed below in this chapter and in Chapter 5 on managing environmental and energy transitions for rural areas.
What is meant by the transition to a circular economy?
The transition to a circular economy requires changes for businesses, consumers, and society at large. The adoption of more sustainable and cleaner production structures entails changes in companies in the way of doing their business. Such changes can include improvements in the design of products as well as of equipment and production processes, adoption of new technologies, product modifications (e.g. product life extension), or internal and external waste management (OECD, 2019[14]). Within society the transition to a circular economy may require new infrastructures and new consumption models and access to services, based on the collaborative and sharing economy. The introduction of new sustainable products and business models also implies changes in consumer behaviours.
The introduction of new sustainable products and services is leading to competition with the existing products and services. For example in the last years, in the market, more sustainable products that meet particular environmental criteria are complementing conventional products. However, new technologies and business models on their own might not replace the linear economic production and consumption systems and structures with circular and reproductive materials and energy flow systems (Korhonen, Honkasalo and Seppälä, 2018[15]). This is because the technologies and business models that have achieved their leading position first will not adopt other new technologies or models. Businesses tend to hold their ground and rather continue the old way of doing things than venture into unknown futures. These dynamics show that sustainability transitions are complex processes and the path towards the goal of a circular economy could require considerable time and effort on the part of regions and cities.
Because the circular economy still lacks a universally accepted definition, policies associated with the transition to a circular economy can also differ substantially. A recent study counted over 100 definitions of the circular economy (Kirchherr, Reike and Hekkert, 2017[16]). OECD work on the circular economy emphasises that achieving circularity means closing resource loops to minimise extraction of raw materials, slowing loops through re-use, repair and remanufacturing services, and narrowing resource flows through more efficient use of materials and products such as cars or phones in current consumption systems (OECD, 2019[14]). Not having a clear definition is one reason why there are no comprehensive parameters and indicators in place yet that can capture all the aspects of a circular economy. This makes a standardised comparison of how regions and cities perform on the circular economy and what effects it has on the environment, economy, and employment still difficult (Kirchherr, Reike and Hekkert, 2017[16]).
The OECD has developed a conceptual framework for the circular economy in regions and cities to support the transition to a circular economy and to facilitate comparison of different circular economy strategies and initiatives (Box 3.1). Cities, regions and rural areas can make use of the circular economy in the provision of services (such as water, waste and energy) to increase the efficient use of resources and to optimise re-use. They can also carry out economic activities (e.g. in the food sector) in a way that closes, slows, and narrows loops across value chains. Finally, infrastructure can be designed to avoid linear lock-ins, for example by turning the construction sector more circular through minimising waste production and maximising waste re-use (OECD, 2020[4]).
Within its program on the circular economy in cities and regions, the OECD has developed a conceptual framework that focuses on 3Ps: People, Policies, and Places:
People: The circular economy is a shared responsibility across levels of government and stakeholders. The business sector can determine the shift towards new business models (e.g. using secondary material, recycling, sharing, etc.). People, on the other hand, make constant consumption choices and can influence production. The circular economy is transformative and implies a behavioural and cultural shift towards different production and consumption pathways, new business and governance models.
Policies: The circular economy requires a holistic and systematic approach that cuts across sectoral policies. As somebody’s waste can be a resource for somebody else, the circular economy provides the opportunity to foster complementarities across policies. As such, environmental, regional development, agricultural and industrial policies should provide complementary approaches to enhance planning, e.g. for the use of water and energy in the built environment or the re-use of food waste for agriculture purposes. The variety of actors, sectors and goals makes the circular economy systemic by nature. It implies a wide policy focus through integration across often siloed policies. When interactions and complementarities are overlooked, the lack of a systemic approach might lead to the implementation of fragmented projects over the short-medium run, rather than sustainable policies in the long run.
Places: Cities and regions are not isolated ecosystems, but spaces for inflows and outflows of materials, resources and products, in connection with surrounding areas and beyond. Therefore, adopting a functional approach going beyond the administrative boundaries of cities is important for resource management and economic development. Linkages across urban and rural areas (e.g. related to bio-economy, agriculture and forest) are key to promote local production and recycling of organic residuals to be used in proximity of where they are produced, to avoid negative externalities due to transport. At the regional level, loops related to a series of economic activities (e.g. to the bio-economy) can be closed and slowed.
Source: OECD (2020[4]), The Circular Economy in Cities and Regions: Synthesis Report, OECD Urban Studies, OECD Publishing, Paris, https://doi.org/10.1787/10ac6ae4-en.
Drivers of the circular economy in regions and cities
The circular economy in regions and cities is mainly driven by concerns about climate change, economic uncertainties, and opportunities for new business models. According to an OECD Survey on the Circular Economy in Cities and Regions,1 climate change (68%), evolving economic conditions (47%) and the search for new business opportunities (44%) are major drivers of the circular transition in regions and cities. Among the top five drivers are also private sector initiatives, and changes in global agendas (both 44%) (See Figure 3.2). The following section unpacks these drivers and how they relate to the circular economy.
Source: OECD (2019), OECD Survey on Circular Economy and Cities and Regions.
The circular economy plays an important role in fighting climate change. Systemic change of energy and industrial systems, land management, buildings, and infrastructure will be needed to put the global economy on track to reach net-zero emissions by 2050 and therefore limit global warming to 1.5˚C with no or limited overshoot. While the supply of energy, and its consumption in buildings and transport, together generate 55% of global GHG emissions, the remaining 45% are directly linked to the production of goods and the management of land (Ellen MacArthur Foundation, 2019[17]). Potential synergies between circular material use, climate change mitigation and the halting of biodiversity loss are recognised in an increasing number of studies. According to a recent study from the Ellen MacArthur Foundation (ibid), applying circular economy principles to transform the way goods and materials are produced and used in the economy would offer significant potential to reduce GHG emissions. For example, a circular economy approach could reduce global CO2 emissions from key industry materials by 40% or 3.7 billion tonnes in 2050. Another study looked at the potential of circular strategies within the car manufacturing and building sectors, including extensive car-sharing systems and electrification (Material Economics, 2018[18]). They calculated that a radical shift to circular business models and low-carbon technology would allow the EU to reduce its industrial emissions by 56%, by 2050, more than half of what is necessary to achieve net-zero emissions. Such a shift requires significant effort from producers, consumers and public policy.
The circular economy can stimulate economic growth and revive local and national economies. The Ellen MacArthur Foundation and McKinsey have demonstrated that by implementing the principles the circular economy increases resource efficiency and the material costs of production in the European Union can be reduced by 10-25% (up to USD 600 billion or 3% of EU GDP (Ellen MacArthur Foundation, 2015[10]). Circular economy technology and the expertise required for implementation can become a growth market globally in the context of increasingly scarce resources. According to the European Environment Agency (EEA), savings of EUR 600 billion can be generated within the EU-27 by 2030 through enhanced resource productivity and material re-use alone (European Environment Energy, 2016[19]). At the level of regions and cities, an example from the city of Amsterdam shows that material re-use strategies can generate annual savings of EUR 85 million in the construction sector and EUR 150 million with more efficient organic residual streams (Amsterdam Smart City, n.d.[20]).
The labour market consequences of a transition to a circular economy are likely positive. According to a recent OECD review of the quantitative literature on the macroeconomic impacts of the resource efficiency and circular economy the transition is likely to lead to a net improvement in employment rates, albeit small and ranging between 0 and 2% (Laubinger, Lanzi and Chateau, 2020[21]). The UK Waste & Resources Action Plan (WRAP) has published a study showing that expansion of the Circular Economy could create up to 3 million extra jobs in the European Union by 2030 (WRAP, 2015[22]).
The circular economy in regions and cities offers opportunities for new business models and product and process innovations. The transition to a more circular economy in regions and cities can be operationalised through circular business models. Available data suggest that circular business models are increasingly adopted. One in four companies for which information is available report that they have changed their product design to improve re-use, repair or maintenance (European Environment Agency, 2019[23]). Recent OECD work has identified five key business models that can provide a business case for the different circular activities (OECD, 2019[14]). Material and technological innovation is a core enabler for fast-tracking transformation from a linear into a circular economy, and businesses can innovate by changing the efficiency of production processes or by introducing alternative materials. Regions and cities play an important role in scaling circular business models. The agglomeration of people, material and skills means that regions and cities provide testbeds and experimentation spaces that can enhance the impact of the circular economy transition. For example, when looking at some of the impacts of new business models, a range of benefits emerge. Refurbishing a thousand tons of electronics would create 13 times more jobs than recycling the same amounts. Switching outdoor US lighting to led lighting would have the same impact on carbon emission reduction equivalent to taking 8.5 million cars off the road. The Airport of Amsterdam in the Netherlands purchases light as a service rather than buying light bulbs. This new model incentivises the manufacturer to make items last for as long as possible. Accessing clothing via rental model could result in a 14 times reduction of garments produced or disposed of (Ellen MacArthur Foundation, 2019[24]).
Private sector and civil society initiatives help foster the transition to a circular economy. The business sector and civil society can promote bottom-up initiatives towards more sustainable production and consumption processes. Regions and cities can provide the enabling conditions for such initiatives to be scaled up or for creating new opportunities for collaboration. For example, in the Region of Lapland (Finland), the business sector began to support the circular economy in 2012 and sought subsequent support from public authorities to improve the re-use of by-products and residues. The request was well received by the local authorities, which started to support the development of the circular economy with technical assistance and promoting collaborations (Region of Lapland, 2020[25]; OECD, 2020[4]).
National and supranational strategies are proving important impetus towards a circular economy in regions and cities. Several initiatives of the European Union, and notably the Circular Economy Action Plan, express this clearly (see Box 3.3). Many countries worldwide are also establishing policy agendas in favour of the move to a circular economy in order to further support the transition to sustainable development and to meet the targets of global sustainable development agenda by 2030. Regions and cities are encouraged to apply innovative strategies for implementing circularity at the regional and urban scale (OECD, 2020[4]).
Global agendas are also driving the transition to the circular economy. The circular economy is central to the achievement of Sustainable Development Goal (SDG) 12 on sustainable production and consumption. It is further a horizontal approach supporting progress towards several other SDGs, such as SDG 6 on water, SDG 7 on energy, SDG 11 on sustainable cities, SDG 13 on climate change, SDG 15 on sustainable use of natural resources. The circular economy also offers mitigation solutions towards fulfilling the objectives of the Paris Agreement since it provides an increased focus on low-carbon materials and has the potential to drive low-carbon behavioural change in society. Finally, the circular economy is a crucial pillar of the European Green Deal, and it represents an opportunity for implementing the New Urban Agenda, and G20 initiatives on resource efficiency (OECD, 2020[4]).
An increasing number of international organisations, umbrella organisations and foundations are supporting regions and cities with their transition to the circular economy. The Ellen MacArthur Foundation, the leading institution in the field, launched in March 2019 a dedicated website on the circular economy in cities, containing examples from several cities all around the world and guidance for circular cities. The C40 collaborated with Climate KIC in 2019, to collect circular economy-related practices. The ICLEI and the Eurocities network are also supporting their members by raising awareness and promoting networking on the circular economy. The European Investment Bank (EIB) dedicated works on funding solutions for cities within the EU Urban Partnership on the Circular Economy (OECD, 2020[4]; Wijkman et al., 2019[11]). The African Circular Economy Network (ACEN), a non-profit organisation formed by professionals working on the circular economy field, organises networking events and shares knowledge through newsletters, blog posts and academic research aiming to promote a restorative circular economy in Africa.
The transition to the circular economy faces governance challenges. Challenges towards building a circular economy are not related to the lack of technical solutions. Instead, lack of critical scale, cultural barriers, inadequate regulatory frameworks, and a lack of financial resources has been signalled as “major” obstacles by more than one-third of the interviewed governments in the OECD Survey (Figure 3.3). Three critical priorities that have been addressed in the survey as future priorities to overcome these barriers are: (i) increasing the environmental quality and resource efficiency in regions and cities; (ii) adapting, updating and making sure that policy and regulation are conducive to the transformation from linear to circular; and (iii) behavioural shifts and awareness-raising (OECD, 2020[4]).
Source: OECD (2019), OECD Survey on Circular Economy in Cities and Regions.
A related challenge is a lack of mutual understanding of what a circular city or region is or aims to achieve. Although environmental objectives, such as reduced material use to reduce GHG emissions, have thus far dominated the agenda when it comes to promoting the implementation of the circular economy, regions and cities are increasingly paying attention to the social and the economic components as drivers for this transition. However, there is still a need to better understand the connections and mutual implications between the different building blocks of the circular economy in cities. Many of existing measures can be labelled as incremental while ‘major investments’ to transform baseline linear systems are largely absent (Wijkman et al., 2019[11]).
Regions and cities need to be ambitious in their CE strategies. Lock-in mechanisms and path dependence patterns might keep regions and cities from promoting circular investment opportunities and production models. They may lead to a situation in which less preferable CE strategies such as recycling maintain a leading position compared to more ambitious strategies such as prevention and re-use, repair and remanufacturing. Moving from an incremental approach to the circular economy towards transformative change requires ambitious action and investment at the level of political decision makers. At the same, awareness of local circular economy opportunities needs to be raised. Regional and city governments can engage with multiple stakeholders from across sectors and catalyse action. This is key to the emergence of circular economy opportunities, which require understanding, collaboration, and action within and between sectors (Ekins et al., 2019[5]).
One of the barriers to the development of the circular economy is that producers and consumers do not yet perceive the benefits so evident. This makes the adoption of the circular economy difficult at the level of companies, where it often entails the adoption of cleaner production processes. Studies also point out that in the business world, the CE concept is still unknown or mainly related to the management of waste and recycling option (Stewart and Niero, 2018[26]). As a result, fostering and boosting the CE in the whole economic system (and in particular in small-medium enterprises) requires policy interventions that enhance the culture and knowledge towards CE, provide financial support to CE-related investments by the companies and provide legislative support to the closure of the loops within the companies.
A range of external company barriers persists, too. Amongst the external barriers that companies might face, ‘inconsistent policies and messages’, and ‘lack of clear pricing signals’, are problems whose resolution would require the intervention of policy makers. Other barriers such as ‘supply chain constraints’, and ‘thresholds in technologies and infrastructure capacity’, may more directly concern interactions with other companies; however, the role of policy in co-ordinating actors and supporting technological innovation may still be significant (Ekins et al., 2019[5]).
Internal company barriers mainly relate to questions of mindset and culture. A recent study on the CE shows that one of the most relevant barriers to the CE implementation is a “hesitant company culture” that limits the discussion about the CE to environmental departments disregarding operative or financial departments (Kirchherr et al., 2018[27]). Financial barriers such as ‘high upfront costs’, ‘low returns on investment’, and constrained ‘access to capital’, could also be improved by policy measures, for example, to provide low-cost financing, or to reduce the cost of commercial financing by providing clear and stable long-term policies.
Policy plays an important role in enabling or constraining the transition to a circular economy. Policy approaches for the circular economy may be broadly separated into five categories of policies. The first three are: (i) market-based policies (alerting economic incentives); (ii) regulatory policies (i.e. setting requirements or prohibitions); and (iii) information policies (i.e. raising awareness in society). While these categories are important tools to address traditional market failures, they are insufficient to stimulate radical innovation and transformation instruments. (iv) Public procurement and infrastructure; and (v) innovation support schemes and collaboration platforms are therefore proposed as additional categories of instruments. Table 3.1 provides an overview of these different types of policies. Although designed primarily for national policy makers, the framework is applicable to policy makers at all levels, from municipal to supranational.
Source: Ekins, P. et al. (2019[5]), “The Circular Economy: What, Why, How and Where”, Background paper for an OECD/EC Workshop on 5 July 2019 within the workshop series “Managing environmental and energy transitions for regions and cities”, OECD, Paris.
The use of regulatory instruments has been central to circular economy policy making to date, particularly concerning waste disposal and pollution. For example, many countries and jurisdictions around the world have instituted bans on disposing of different types of waste streams into landfills, requiring instead alternative disposal, treatment or material re-use. A range of countries and jurisdictions has also employed outright bans on the manufacture, sale or use of certain products or materials, particularly single-use plastic bags to increase material use and prevent pollution.
Fiscal instruments have also been widely used when it comes to prolonging the lifecycle of materials in the economy, again with a substantial focus on waste disposal and pollution. Landfill taxes to incentivise the diversion of waste streams have become widespread across the EU and other OECD countries in recent years (OECD, 2015[28]), often in combination with landfill bans. When it comes to education and awareness-raising, research shows that between 1970 and 2012, 544 environmental labelling and information schemes (ELIS) were introduced across 197 countries. Around 40% are related to natural resources and waste. The vast majority of these are voluntary schemes, operated by private or non-governmental organisations at national levels, and generally concern the processes and methods of production (Gruère, 2013[29]).
Green public procurement is widely recommended as an effective policy for providing a market for products and services with high environmental performance. Public procurement accounts for around 12% of GDP and one-third of public expenditures in OECD countries. In 2016, 84% of OECD countries had green public procurement policies at the central government level. However, few include resource efficiency considerations (OECD, 2019[3]) and the evidence for such schemes achieving their objectives, both in terms of direct environmental benefits and stimulating innovation, remains limited (albeit largely positive). In 2015, the Amsterdam Metropolitan Area has initiated a circular economy programme focusing amongst others on green public procurement (Box 3.2).
Innovation support schemes and collaboration platforms for the circular economy have been created and diffused by national and regional governments in many locations. Although innovation support schemes have been created in many places, tracking the provided innovation support to improvements in circularity remains difficult because the impact of such activities is often not measured (Prendeville, Cherim and Bocken, 2018[30]).
The Amsterdam Metropolitan Area is a comparatively densely populated region with 2.33 million inhabitants. Large amounts of products and material circulate within the region, and it is home to many innovative and sustainable entrepreneurs. The Amsterdam Economic Board has initiated a circular economy programme at regional level in January 2015 in close co-operation with the Regional Board of Local Governments, businesses, knowledge institutes, and citizens. Within the programme, 32 municipalities and two regions were engaged in communities of practice. To stretch the circular ambition of the programme, the aim was to set up activities that focus on the highest possible steps on the ladder of circularity as depicted in Figure 3.4.
Based on the ladder of circularity, the strategic choice of the programme in 2015-18 was to focus on two major strategies:
Circular procurement: The strategy aims to stimulate circular products through circular procurement executed by local governments and other contractors (for example businesses and knowledge institutes). Three communities of practice were set up successively; with a total of 31 representatives of procurement or sustainability division. Each community of practice consisted of 6 sessions, in which the participants learned from each other and acquired the necessary expertise to implement circular procurement within their organisations.
Closing the loop of resource streams: The aim of this strategy was to create ecosystems in which resource streams are recycled and if possible re-used and redesigned. The Board selected nice resource streams, designed, and adopted a generic approach to generate and select the most promising options for closing the loop of each resource stream. A key lesson from this exercise has been that the approach of material streams has to be tailor-made for different types of materials.
Key results were EUR 150 million were invested in circular procurement. Moreover, the participating 32 municipalities and the two provinces of the region signed a manifesto, which committed them to realise 10% circular procurement by 2022, 50% in 2025 and 100% as soon as possible. High-value recycling and product re-design and re-use of 20 resource streams were additional positive impacts.
The main lesson learned was that success depends on a number of main drivers. First, there should be one or a limited number of initiators that act as inspiring ‘transition brokers’. Second, co-operation across the product chain (including end-users) is key, including trust and mutual respect. A combined effort on the part of innovative companies and forward-thinking universities, plus a government to stimulate, facilitate and connect them, is crucial, as together they know more, and can achieve more. Third, new financial and organisational arrangements are important to create a convincing business case. Finally, tailor-made incentives need to be designed for specific product or waste streams. One of the main incentives is circular procurement.
Source: Amsterdam Economic Board (2019), The evolution of implementing circular economy: The case of the Amsterdam Metropolitan Area. PowerPoint Presentation for the high-level expert workshop on “Managing the Transition to a Circular Economy”, OECD, Paris, 5 July 2019, unpublished.
Policy initiatives related to the circular economy in regions and cities
Regions and cities have put in place a number of initiatives to promote, facilitate and enable the circular economy. Amsterdam (Netherlands), Paris (France) developed dedicated Strategies based on a long-term vision. The Circular Economy Strategy of the Greater Paris (France) has been developed by 240 stakeholders from over 120 different organisations. They were divided into working groups and defined 65 proposals. Nantes Metropolitan Area (France) and Valladolid (Spain) developed Roadmaps that indicates steps for sectors and business to shift towards the circular economy. At the regional level, strategies are often embedded in carbon neutral and or sustainable strategies. This is the case of the Region of Västerbotten, Sweden, and the Autonomous Region of Andalusia, which approved the “Strategy for Sustainable Development” (OECD, 2020[4]).
Source: OECD, (2019), OECD Survey on Circular Economy in Cities and Regions.
The circular economy plays an important role in a whole range of sectors. The EU circular economy action plan (see Box 3.3) identifies five priority sectors intending to accelerate the transition to the circular economy along its value chain: plastics, food waste, critical raw materials, construction and demolition, biomass and bio-based materials. According to the OECD (2019[31]), 78% of regions and cities surveyed referred to waste as the core sector of the circular economy, followed by construction and demolition (66%), land use and spatial planning, and food production (52%). In addition, manufacturing (45%), water and textiles (42%), energy (39%), biomass (36%), and finally agriculture and mobility (33%) were also highlighted as potentially “circular” sectors (OECD, 2019[31]).
The European Commission adopted in 2020 a new Circular Economy Action Plan as one of the main blocks of the European Green Deal, Europe’s new growth agenda. The new Action Plan announces initiatives along the entire life cycle of products, targeting for example their design, promoting circular economy processes, fostering sustainable consumption, and aiming to ensure that the resources used are kept in the EU economy for as long as possible.
The European Commission launched a first Circular Economy Action Plan in 2015. All 54 actions under the plan and focusing on five priority areas (plastics, food waste, critical raw materials, construction and demolition, and biomass and bio-based products) have been delivered or are being implemented. According to the EC, the implementation of the Circular Economy Action Plan has accelerated the transition to a circular economy in Europe and its recognition across all levels of government and within the private sector.
Amongst others, relevant developments in the EU are:
Increase of 6% of the circular employment between 2012 and 2016.
New business opportunities and development of new markets, as in 2017, circular activities (e.g. repair, re-use or recycling) generated around 155 EUR billion in value-added in the EU-28, 17% higher than in 2011.
Increased recycling of municipal waste during the period 2008-16.
The implementation of circular economy initiatives is further supported through the European Circular Economy Stakeholder Platform, a virtual open space that facilitates policy dialogue among stakeholders and provides information on ongoing circular economy initiatives within the EU.
The below section will look deeper at the regional dimension of some critical circular sectors as identified by the OECD survey and which are also part of the EU Circular Economy Action Plan amongst others:
Waste
Waste production is growing, driven by rapid urbanisation and growing populations. The world is expected to generate 3.4 billion tons of waste annually by 2050, increasing drastically from today’s 2.01 billion tons (Kaza et al., 2018[32]). High-income countries - although they only account for 16% of the world’s population – are generating more than one-third (34%) of the world’s waste. Plastics are especially problematic. Plastic production has harmful impacts on the environment and climate. Estimates put the contribution of plastic production and plastic waste incineration globally at 400 million tonnes of carbon dioxides equivalents (CO2e) annually. Based on increasing demand, plastic production reached 348 million tonnes in 2017, of which almost one fifth was produced in Europe. However, only 31.1% of plastic waste was recovered in Europe in 2017 (European Environment Agency, 2019[33]).
Cities and municipalities are increasingly recognising the potential of the circular economy in waste collection and recycling. Improved waste collection can be a first step towards a circular economy. However, many regions and cities are also striving for increased producer responsibility or high-quality recycling and biological waste treatment (e.g. organic processing, composting or fermentation). Local and regional authorities play an important role when it comes to initiating and accelerating the transition to a circular economy. For example, Groningen, in the Netherlands, plans to launch a circular hub to promote the recycling of circular materials such as textiles, wood and plastics. The Greater Porto Intermunicipal Waste Management Service (LIPOR, Portugal) has developed a range of measures to support the circular economy in waste production, including limiting the use of plastics, and stimulating a market for recycled plastics (OECD, 2020[4]). Going forward, a new conditionality in EU cohesion policy funding for the period 2021-27 will require the adoption of Waste Management Plans, with a strong regional dimension in some EU Member States.
Construction and demolition
Circular principles can reduce the environmental impact of buildings significantly. Construction and demolition (C&D) waste makes up just over one-third of total waste generation in the EU within total 374 million tonnes generated in the EU in 2016 (European Environment Agency, 2020[34]). It is also defined as a priority area in the EU circular economy action plan for closing the loop and the revised Waste Framework Directive (WFD 2008/98/EC, amended 2018/851) sets a mandatory target of 70% for its recovery by 2020. Many EU countries have succeeded in establishing markets for recovered C&D materials.
Regions and cities are implementing various actions towards more circular buildings, in order to reduce the use of new material, increase recycling, while reducing CO2 emissions. These actions consist of designing for disassembly and promoting modular buildings that can adapt to changes in economic activities; increasing the use of buildings through smart repurposing; increasing durable design and material. For example, the city of Amsterdam applies smart design to make buildings more suitable for the repurposing and re-use of materials and to improve efficiency in the dismantling and separation of waste streams (Amsterdam Smart City, n.d.[35])). The Flemish Public Waste Agency (OVAM, Flanders, Belgium) together with the Public Service of Wallonia (SPW) and Brussels Environment Agency (Bruxelles Environnement – Leefmilieu Brussel) developed an online open-access tool called “Tool to Optimise the Total Environmental impact of Materials” (TOTEM). The TOTEM helps architects, designers and builders to assess the environmental impact of building materials to increase the material and energy performance of buildings (TOTEM, 2020[36]; OECD, 2020[4]).
Land use and spatial planning
Land use and spatial planning can strongly facilitate the take-up of the circular economy. The spatial planning of residential and/or industrial areas can lay the foundation for future circular material flows and resource independence. If circular economy principles are incorporated early on in the urban development process, planners can ensure that the physical structure of the city and its infrastructure supports the effective re-use, collection and redistribution of resources such as industrial by-products, and components (Ellen MacArthur Foundation, 2019[17]).
Cities have different tools at their disposal to foster circular urban planning, including circular land tenders, land use regulation and urban planning. Amsterdam is the first city in the world that issued a Roadmap Circular tendering for constructing sites. The roadmap offers practical information on how to design a circular tender and provides information on how to define and measure circularity in buildings (Amsterdam Smart City, n.d.[20]). Urban planning for compact city development helps circularity because it reduces a city's resource and energy requirements and improves the provision and use of infrastructure. Land use regulation and urban planning for compact cities is an integral part of the circular economy strategy of Flanders, Belgium (OECD, 2020[4]).
Food
A circular economy for food mimics natural regeneration systems so that there is no waste, but raw material for another cycle. A complete circular system for food includes local production of food, local consumption, and organic waste management. The transformed waste could then serve again as raw materials for food protection or as bio-gas for other users (e.g. fuel for buses). Roughly one-third of the food produced is lost, the bulk of which comes from consumption in developed countries (61%), followed by production, handling and storage (WRI, 2018[37]). The reduction of food loss and waste can be enabled by improving local waste management at every stage of the food chain from production to final consumption. Where food loss cannot be avoided, it may be re-integrated into natural nutrition cycles. This enables new business models based on urban agriculture, local production and new interactions with producers in peri-urban and rural environments.
Urban and rural areas already are moving towards circular food systems. According to (OECD, 2020[4]), there are already some initiatives to reduce food waste (Groningen, Umeå, Ljubljana, Porto), promote urban agriculture (Paris, Brussels, Guelph) and support local food production (Umeå). Some of these initiatives provide for improved co-ordination between urban and rural areas (Valladolid), and explicitly include restaurants and hospitality in current strategies (Amsterdam, Valladolid, Umeå) (OECD, 2020[4]). The EU Farm to Fork strategy highlights the circular bio-based economy as having a still largely untapped potential for farmers and their cooperatives. It also envisages to scale-up and promote circular business models in food processing and retail, including specifically for SMEs ( (European Commission, 2020[38]).
Measuring the circular economy in regions and cities
Measuring approaches to follow the development of the circular economy still lag behind. Complex dynamics and multiple stakeholders make it difficult to monitor the transition appropriately. The complexity and system perspective of the circular economy and its approach of addressing economic, environmental, and social concerns at the same time further call for a broad approach to monitoring. A first challenge for monitoring the circular economy is the lack of an agreed precise definition of a circular economy. In addition, data gaps and inconsistency in statistical reporting is a problem, especially as some of the dimensions of the CE have not historically been reflected in statistical databases. A second challenge is a lack of alignment of local, regional, and national CE strategies and monitoring systems. Third, and related to the above, there is still a limited understanding of the rebound effects of circular economy strategies. For example, a recent study (Haupt, Vadenbo and Hellweg, 2017[39]) found that commonly used indicators for circularity such as collection rate and recycling rate may give a misleading indication of progress, as recycling rates indicate inputs into the recycling processes rather than an indication of the efficiency of recycling processes (OECD, 2020[4]).
Supporting the transition to a circular economy for regions and cities requires making better use of existing data as well as designing new approaches to data and indicators. In New York, the Circular City program is a first-of-its-kind experiment to test whether collaboration between the public and private sectors. It consists of collecting and use a wide range of real data that can be used by organisations and start-ups to solve urban problems, such as mobility. Within the New Lab, three start-ups working on waste collection and mobility and three city agencies working on the same fields took part in a pilot project. The challenge was to create an incentive system whereby city agencies could access data that start-ups collected. One of the start-ups was able to produce a technologically advanced micro-level mapping of transportation by taxis and of garbage collection through real-time data. These data can inform policy makers. As such, even outside of the monetisation framework, it is possible to build value and collaborate with start-ups.
Several subnational governments have taken efforts towards measuring the circular economy. As part of their circular economy strategies, many municipalities have developed monitoring frameworks or systems of metrics at the urban level. In many cases, they focus on specific aspects such as recycling of construction and demolition (C&D) waste and food waste while others also include aspects such as jobs and private investments. An increasing number of cities have adopted circular economy strategies and corresponding monitoring frameworks (see Box 3.4). From the city perspective, metrics can help motive the transition to the circular economy, measuring carbon neutrality targets, the number of jobs created and the increase in the sharing economy and the positive impacts on material flows. Existing measurement frameworks take into account the following dimensions: Material flows, accounting for the amount of waste recycled, incinerated or sent to landfills; material streams, including food, plastic and textile; recycled material vs virgin material used in products; the extent to which procuring products could be replaced by procuring services; the existence of new business models and sharing platforms. The OECD developed the OECD scoreboard on the governance of the circular economy to support regions and cities to self-assess the existence and level of functioning of governance conditions, as enablers of circular economy systems (OECD, 2020[4]).
The City of Paris (France) proposes one performance indicator for each of the 15 actions included in the 1st Roadmap Paris Circular Economy Plan. The first roadmap addresses themes considered to be priorities and structural for the city: planning and construction; waste reduction, re-use. re-use, re-use or repair; support for local actors; public procurement; and responsible consumption. In the second roadmap, there are two indicators for each of the 15 established actions (one achievement indicator and one impact indicator).
In Peterborough (United Kingdom), the local circular economy initiative presents eight indicators that report on the waste (% household waste and % non-household waste recycled) energy (CO2 emissions per capita and amount of renewable electricity available to each household), and socio-economic dimensions (number of shares in a local platform and % of adults cycling and walking, % circular jobs and % circular business). On the “Measuring the Circular Economy - Developing an indicator set for Opportunity Peterborough” report, the set of indicators are designed to: i) allow individuals and organisations to measure the level of circularity of the City of Peterborough (United Kingdom); ii) capture specific characteristics of the changing system; and iii) evaluate the progress made on the circular economy objective.
The “Making Things Last: A Circular Economy Strategy for Scotland” report aims at better understanding the flow of materials in Scotland through supply chains to consumers and onwards to other uses. The report gathers three waste-related indicators: the total amount of waste produced by sectors (household; commerce and industry; and construction and demolition); the amount of waste produced by sectors per unit of GVA (Gross Value Added); and the carbon impact of waste (the whole-life impacts of waste including the benefits of prevention and recycling). The aim of the current indicators and those to be created is to contribute to building an evidence base to help identify specific circular economy opportunities.
The region of Flanders currently builds up a circular economy monitoring system (Figure 3.5). The proposed system works with macro-, meso- and micro-level indicators. The macro-level indicators would look at circularity levels and related impacts. The meso-level would focus on system indicators that fulfil societal needs and allow introducing a sustainability transition perspective into the monitoring process. The micro-level indicators would measure products and services.
Sources: (Ekins et al., 2019[5]; Ellen MacArthur Foundation, 2019[40]; Mairie de Paris, 2017[41]); OVAM Flanders (2019, unpublished), Flanders Strategy towards a circular, low carbon economy. PowerPoint Presentation for the high-level expert workshop on “Managing the transition to a circular economy”, 5 July 2019, OECD Paris.
Monitoring progress can give a good indication of whether the transition is on its way or whether additional measures are needed. The report Single-Use Plastics: A Roadmap for Sustainability (UNEP, 2018[42]) provides a good example. It shows that introducing a single-use ban on plastic bags has resulted in sharp reductions in plastic pollutions only in 30% of registered cases. In the countries that have reported a small or non-existent impact, the main issues seem to be a lack of enforcement and a lack of affordable alternatives. The (OECD, 2020[4])defined a Scoreboard to measure the level of advancement towards the circular economy, distinguishing across “newcomer”, “in progress” and “advanced” regions and cities, based on ten governance indicators that can allow a self-assessment.
Digital technologies open up new possibilities for monitoring the circular economy. Digital technologies can support the upscaling of the circular economy and improve its monitoring. The Internet of Things, blockchain, artificial intelligence, and interactive platforms change how materials and interactions are managed across the value chain and how services are provided. The recent explosion in big data sources should be further harvested for their potential to learn about changing societal structures and consumer behaviours. Tracking consumer choices and behaviours might provide new information that can be used to influence these choices towards a circular way of thinking. New ways of thinking might also lead to price signals moving away from a linear to a circular economy.
A number of lessons can be learnt from existing circular economy practices in regions and cities:
Address consumption patterns: Regions and cities can support circular consumption patterns of re-using, re-storing and re-pairing rather than buying new products, especially for electrical and electronic devices. They can also provide education and information for consumers so as to make more sustainable and responsible choices regarding appliances’ energy efficiency and reparability potential.
Enhance co-ordination across levels of government: Having a common understanding of how strategies and objectives can be aligned is key to boost the circular economy at local and regional level. Ambitious policies can be delivered through technological innovation, funding, and investment, which require co-ordination across levels of governments, according to respective roles and responsibilities. Regions and cities can play an important role in making material use more effective. However, in some cases, regulation changes are the responsibility of national governments. Dialogue is needed to identify challenges in this respect and overcome them.
Align the circular economy with wider well-being gains. The circular economy not only has environmental and health benefits such as reducing the risk of resource depletion, lowering air pollution and curbing GHG emissions, it also can contribute to new employment opportunities and new business models for cities, regions, and rural areas. Policy makers need therefore to re-assess policy priorities and align the circular economy with objectives to generate wider well-being gains.
Move from waste to resources: Waste definition, collection, and treatment are complex for public and private actors. New technologies allow more efficient recycling and transformation of waste, which cannot be reduced, into secondary material. However, first, strategic planning is needed for regions and cities to move from waste management to material strategies; second, a market for secondary products is still poorly developed.
Reinforce capacity: Inside public administration and within companies, capacity should be built on the challenges and opportunities of the circular economy towards more sustainable production and consumption patterns. Educational campaigns can help build awareness among private households to reduce consumption, too. Managing transition and transition managers are needed.
Connect cities and rural regions with businesses: there is a variety of circular economy business model applicable at the city and regional level. For this to happen, cities as well as local communities in rural areas should connect with companies, create collaborations, share data, boost digitalisation in sectors such as waste collection, shared mobility, food chains.
Support experimentation and networking: Regions and cities are important places for the circular economy to emerge and unfold through experimentation and innovation. They can experiment with projects before they are rolled out more widely and test initiatives such as energy-efficient buildings, bike-sharing systems and behavioural change campaigns. Networks facilitate experimentation and help raise the level of ambition to learn from and compete with each other.
Strive for systematic change beyond experimentation: Setting local targets for circular economy initiatives is useful for experimentation and for creating momentum. Mainstreaming circular economy initiatives requires however effective co-ordination with regional and national governments, strong investment decisions, and scaling-up of existing technologies and practices.
Increase the uptake of Green Public Procurement: Green public procurement has huge potential in cities and rural regions to drive production and consumption of sustainable patterns. Regions and cities can lead by example by introducing circular economy principles in public tenders, from mobility to food to furniture.
Improve data and metrics: international organisations and institutions should support regions and cities in measuring their level of circularity to improve where need be. Most of the framework indicators are related to the waste sector. However, the complexity of the circular economy as a system should take into account environmental, social and economic dimensions.
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← 1. Within the OECD programme on the circular economy in cities and regions, a survey has been carried out between April and June 2019 among 31 cities and 3 regions located in Europe (26) Americas (5), Oceania (2) and Asia (1) The survey aimed at gathering data and information on current practices of the circular economy in cities and regions, main implementation tools (including regulatory frameworks and economic instruments), as well as obstacles and good practices available to date. Update results, collecting data form 50+ cities and regions will be available in the OECD report on the Circular Economy in Cities and Regions (OECD, 2020[4]).