Cities and regions play a crucial role in accelerating the transition to a circular economy. However, the benefits of a fully integrated territorial approach remain to be unlocked. This chapter provides an overview of EU policies, legislation, and tools employed by cities and regions to foster the circular transition, and examines key challenges and potential solutions through the lens of the OECD 3Ps framework: People and Firms, Policies, and Places.
The Circular Economy in Cities and Regions of the European Union
Abstract
Cities and regions play a crucial role in accelerating the transition to a circular economy (Chapters 1 and 2) and enhancing the governance conditions required to support this transition (Chapter 3). However, the benefits of a fully integrated territorial approach remain to be unlocked. Such an approach would require adapting policies to local challenges, including through effective multi-level governance, and leveraging the role of subnational governments to integrate place-based considerations (OECD, 2024[1]). This chapter provides potential solutions through the lens of the OECD 3Ps framework: People and Firms, Policies, and Places (Box 1.1).
The OECD 2020 Report on the Circular Economy in Cities and Regions introduced the 3Ps framework – People and firms, Policies, and Places – as a conceptual tool to guide the transition to a circular economy in an integrated manner across levels of government, stakeholders and territorial areas (Figure 1.1).
The 3Ps Framework has three core dimensions.
1. People and firms are at the centre of a cultural shift towards new business and governance models within a circular economy. Citizens make constant consumption choices and can influence production, while the business sector can determine the shift towards new business models (e.g. using secondary material, recycling, sharing, etc.). Knowledge institutions contribute to boosting innovation and research. Non- profit organisations are at the core of bottom-up initiatives in a wide range of sectors, such as food and the built environment, to raise awareness and build capacities.
2. Policies: The circular economy requires a holistic and systemic approach that cuts across sectoral policies. As somebody’s waste can be someone else’s resource, the circular economy provides the opportunity to foster complementarities across policies, such as environmental, regional development, agricultural and industrial ones.
3. Places: Adopting a functional approach going beyond the administrative boundaries of cities and regions is important for resource management and economic development. 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, for example, linkages across urban and rural areas (e.g. related to agriculture and forestry) are key to promote local production and recycling of organic residuals to be used in proximity of where they are produced and avoid negative externalities due to transport. At the regional level, loops related to a series of economic activities (e.g. to the bioeconomy) can be closed and slowed.
The 3Ps framework has been pilot-tested in 10 OECD Policy Dialogues between October 2023 and April 2025 across diverse cities and regions, including Berlin (Germany), Central Macedonia (Greece), Jyväskylä (Finland), Matosinhos (Portugal), Møre and Romsdal (Norway), Sofia (Bulgaria), Strasbourg (France), the Valencia Region (Spain), West Ireland (Ireland), and Zuid-Holland (Netherlands).
Source: OECD (2020[2]), The Circular Economy in Cities and Regions: Synthesis Report, https://doi.org/10.1787/10ac6ae4-en.
Implementation of EU polices and laws by cities and regions
The Circular Economy Action Plan (CEAP), adopted in 2015 and updated in 2020, has been instrumental in driving progress on the circular economy across levels of government. Since the 2015 CEAP, 24 Member States have adopted national circular economy strategies, roadmaps and action plans (EEA, 2022[3]). The 2020 CEAP is identified as the most influential EU policy guiding cities and regions towards a circular economy, with 80% of surveyed respondents referencing the CEAP as a basis for their own visions (Figure 1.2). Although it primarily targets national governments, with limited references to the role of cities and regions, the CEAP serves as an inspirational framework for local initiatives. For example, it has been integrated into the preparation of municipal circular economy plans and acknowledged as strategic for key sectors. Its influence is evident in subnational initiatives including the Climate Pact of Luxembourg, the Climate Action Plan of Torres Vedras, Portugal, and climate neutrality goals (e.g. in Valladolid, Spain).
Note: Results based on a sample of 64 respondents that responded “Yes” to consideration of the respective EU policies and strategies as a frame of reference for its own circular economy strategy.
Source: OECD (2020[2]), OECD Survey: The Circular Economy in Cities and Regions in the European Union (EU).
As part of the CEAP, the Circular Economy Monitoring Framework (CEMF) has been tracking progress towards the circular economy in the EU since 2018. Overall, the framework provides a set of 11 indicators and sub-indicators across five dimensions: (i) production and consumption, (ii) waste management, (iii) secondary raw materials, (iv) competitiveness and innovation, and (v) global sustainability and resilience (Table 1.1). In 2023, it was enriched with new indicators, for example, on material and consumption footprints. However, indicators are only available at the national level.
Source: Eurostat (2023[4]), EU Circular Economy Monitoring Framework, https://ec.europa.eu/eurostat/web/circular-economy/monitoring-framework
Beyond the CEAP, EU strategies on sustainable and circular textiles (48%), plastics (45%), and biodiversity (44%) are cited as sources of inspiration by under half of surveyed cities and regions (Figure 4.2). The Plastics Strategy has influenced measures such as reducing single-use plastics at city events (Bratislava, Slovak Republic), adopting guidelines to prevent single-use plastics (Prague, Czechia), and identifying plastics as a strategic waste stream for recycling and upcycling (The Hague, Netherlands). It has also inspired the design of targeted strategies, such as the Plastic Reduction Strategy (Glasgow, United Kingdom), which aims to eliminate unnecessary plastics by 2030, and the establishment of pacts to reduce plastic usage (e.g. the Portuguese Pact for Plastics signed by municipalities such as Valongo). The textiles strategy has informed initiatives such as the Fashion, Fact and Fun programme to support fashion companies (Gothenburg, Sweden) and the inclusion of sustainable and repairable textiles as a strategic sector in upcoming circular economy initiatives (Tallinn, Estonia). The biodiversity strategy has fostered discussions linking biodiversity with food consumption and inspired energy and recycling projects. It has also been incorporated into local environmental programmes (Kouvola, Finland) and served as a foundation for developing local biodiversity strategies (Valladolid, Spain).
Additionally, tools such as the EU Ecolabel are regarded as useful by one-third of respondents. The number of products certified with the EU Ecolabel has quadrupled over the past 15 years, from 21 300 in 2010 to over 98 000 in 2024, reflecting the growing adoption of sustainable practices across Europe (European Commission, 2025[5]). Public awareness and trust in the certification are also on the rise, with 38% of EU citizens recognising the EU Ecolabel. Moreover, 73% of Europeans consider a product's environmental impact as a key factor in their purchasing decisions, highlighting the certification’s role in influencing consumer behaviour and driving market demand for sustainable products (European Commission, 2023[6]).
When it comes to legislation, the EU Waste Framework Directive is the most influential EU directive relating to the circular economy for subnational governments, with four out of five (80%) surveyed cities and regions reporting its influence on their policies and initiatives (Figure 1.3). Although the Directive does not set targets for municipalities, the transposition of EU Directives and related targets into Member States’ national law creates obligations for local governments. Approaches vary across countries, with some setting explicit recycling or waste management targets for municipalities, while others provide broader guidelines that allow flexibility in achieving national goals.
Note: Results based on a sample of 64 respondents that responded “Yes” to influence of the respective EU legislation for circular economy policies/initiatives implemented in their city/region.
Source: OECD (2020[2]), OECD Survey: The Circular Economy in Cities and Regions in the European Union (EU).
The Single-Use Plastics Directive is recognised by 66% of respondents as relevant at the subnational level (Figure 4.3). Similar to the Waste Framework Directive, its transposition into national legislation subsequently influences local and regional policies. The Directive is integrated in regional waste prevention and management plans (Basque Country, Spain), circular economy laws (Guadalajara, Castilla-La Mancha, Spain), dedicated plastics strategies (Canary Islands, Spain), and waste action plans (Torres Vedras, Portugal). Its implementation has led to mandatory rules for commerce (Valladolid, Spain) and stimulated discussions that raised awareness among local businesses (Vitoria-Gasteiz, Spain). It has inspired plastic management plans and influenced waste management operators (Bodø, Norway), prompted cities to reduce single-use plastics at events, festivals, and within administrations (Bratislava, Slovak Republic), and resulted in the establishment of targets to reduce disposable items, including plastics (Gothenburg, Sweden). Other initiatives include the development of plastic reduction guidelines (Prague, Czechia), the reuse of plastic products such as cups at cultural events (The Hague, Netherlands), and overhauling the organisation of public events to limit plastic use (Lääne-Harju, Estonia; Tallinn, Estonia).
The Eco-design Directive seems less familiar to cities and regions, with only 41% of respondents acknowledging its influence on their circular economy policies and initiatives (Figure 4.3). Beyond its integration into national strategies and regulations, the Directive is reflected in subnational strategies and frameworks, such as the Euskadi 2030 Circular Economy Strategy (Basque Country, Spain), regional strategies (Canary Islands, Spain), and circular economy laws (Guadalajara, Castilla-La Mancha, Spain). The new Ecodesign for Sustainable Products Regulation enacted in 2024 aims to reduce the overall environmental and climate impacts of products on the EU market by ensuring products last longer, are easier to repair and recycle, contain fewer problematic chemicals and more recycled materials, and are more energy and resource-efficient (European Commission, 2024[7]).
EU funds and tools for circularity in cities and regions
Funding programmes play a crucial role in supporting the circular economy transition at the subnational level. More than three-quarters (77%) of surveyed cities and regions report benefitting from these programmes (Figure 1.4), notably Horizon Europe Horizon (e.g., Central Macedonia, Greece; London, United Kingdom), formerly Horizon 2020 (e.g., Bodø, Norway; Haarlem, Netherlands; Milan, Italy; Tilos, Greece), the LIFE programme (e.g., Päijät-Häme, Finland; Podravje, Slovenia), the InvestEU Fund, Interreg (e.g., Castile and León, Spain; Malmö, Sweden; Møre and Romsdal, Norway), and the European Regional Development Fund (ERDF) (e.g., Helsinki, Finland; Kouvola, Finland; The Hague, Netherlands).
Note: Results based on a sample of 64 respondents that responded “Yes” and “Not yet, but planned” to benefiting from EC financial support for circular economy initiatives; taking part in any EU stakeholder engagement initiative; benefitting from EU programmes that support circular innovation and experimentation (e.g. pilot projects); or benefitting from EU programmes to build capacities and skills on the circular economy.
Source: OECD (2024[8]), OECD Survey: The Circular Economy in Cities and Regions in the European Union (EU).
Horizon Europe is the EU's research and innovation funding programme with a budget of EUR 95.5 billion until 2027. It aims to tackle climate change, make progress towards the UN Sustainable Development Goals and boost EU competitiveness and growth. The programme funds circular economy projects across sectors through research, innovation and piloting initiatives, with a focus on green and digital solutions. Horizon 2020 preceded the programme for the period 2014-2020 with a budget of approximatively EUR 80 billion (European Commission, 2023[9]).
The LIFE programme (2021-2027) allocates EUR 5.4 billion to environmental and climate change initiatives. One of its four sub-programmes focuses on the circular economy, co-financing projects related to resource recovery from waste and addressing issues such as water, air, noise, soil, chemicals management and environmental governance. LIFE has already allocated EUR 100 million and supported more than 80 circular economy projects (European Commission, 2023[10]).
The InvestEU fund leverages public and private investment across sectors and uses a guarantee mechanism to attract private investment to circular projects. For example, the European Investment Fund (EIF) invested EUR 50 million in Infinity Recycling's Circular Plastics Fund from 2021 to 2027 to accelerate plastics circularity by promoting advanced plastics recycling and re-introducing plastics into the existing value chain. The budget guarantee signed with the EIF aims to increase the risk-bearing capacity and mobilise at least EUR 372 billion of additional investment (European Commission, 2023[11]).
Interreg Europe encourages cross-border co-operation. It helps EU countries find joint solutions to a range of challenges, including those related to the environment, health, research, education, sustainable energy and transport. The Interreg NEXT co-operation programmes for 2021-2027 prioritise green and digital transitions while preserving natural heritage in regions such as the Barents Sea, the Baltic Sea, the Danube and Carpathian regions, the Black Sea basin and the Mediterranean basin (Interreg Europe, 2022[12]).
The European Regional Development Fund (ERDF) aims to strengthen economic, social and territorial cohesion in the European Union by correcting regional disparities within the Union. For the period 2021-2027, the Fund enables investment to make European regions more competitive by promoting innovative and smart economic transformation and regional ICT connectivity, and a greener, low-carbon transition towards a net zero carbon economy and a resilient Europe by promoting a clean energy transition, green and blue investment and the circular economy. (European Commission, 2021[13]).
In addition, the European Investment Bank (EIB) provides direct and indirect financing to the public and private sectors, as well as financial and technical advisory services to improve the bankability and investment readiness of circular economy projects. Between 2018 and 2022, the EIB provided EUR 3.4 billion to co-finance 118 circular economy projects in various sectors (EIB, 2023[14]). The three main sectors financed by the EIB in 2018-2022 were industry and services (35%), agriculture and the bioeconomy (23%), and solid waste management (22%). The EIB offers Municipal Framework Loans to cities, which are multi-scheme credit lines for cities’ circular investment programmes. The EIB also proposes strategic, technical and financial advisory to local actors. In collaboration with the European Investment Advisory Hub, the Bank launched the Circular City Funding Guide and the Circular City Centre (C3), which operates as a resource centre within the EIB to support EU cities in their transition towards the circular economy transition.
Source: EIB (2022[15]), The C3 Circular City Advisory (CCA) Programmes; https://advisory.eib.org/_tools/resources/documents/c3-circular-city-advisory-programme-brief-draft-september-2022.pdf; European Commission (2023[16]), The Circular City Centre: The C3 Circular Cities Resources Inventory, https://circular-cities-and-regions.ec.europa.eu/support-materials/papers-and-reports/circular-city-centre-c3-circular-cities-resources-inventory; EIB (2023[17]), A Guide for Circularity in the Urban Built Environment, https://advisory.eib.org/_tools/resources/documents/a-guide-for-circularity-in-the-urban-built-environment-draft-january-2023.pdf.
Innovation and capacity building are cornerstones of the transition towards a circular economy at territorial level. Over half (52%) of surveyed cities and regions take part in EU programmes supporting circular innovation and experimentation (Figure 1.5). These include the CCRI (e.g., Flanders, Belgium; Helsinki-Uusimaa, Finland; Møre and Romsdal, Norway; Tampere, Finland) and the European Urban Initiative (e.g., Lappeenranta, Finland; Ljubljana, Slovenia; Maribor, Podravje Region, Slovenia). More than two-thirds (36%) of surveyed cities and regions take part in EU programmes and funding to build capacities and skills on the circular economy (Figure 1.5), such as URBACT’s “Let’s Go Circular!” project (e.g., Guimarães, Portugal; Granada, Spain; Malmö, Sweden; Munich; Germany; Oulu, Finland) and the Intelligent Cities Challenge (e.g., Esch-sur-Alzette, Luxemburg; Guimarães, Portugal; Granada, Spain; Sofia, Bulgaria). The latter provides advice and technical assistance to 136 cities to lead the green and digital transition. It addresses several sectors relevant to the circular economy, including waste, air pollution, water, technology, construction, and buildings.
Note: Results based on a sample of 64 respondents responding to questions on the participation or promotion of innovation and capacity building programmes on the circular economy.
Source: OECD (2020[2]), OECD Survey: The Circular Economy in Cities and Regions in the European Union (EU).
Despite progress, the transition to a circular economy in the EU is held back by structural, economic, and governance barriers across levels of government. Over-reliance on downstream waste management, misaligned economic incentives, disparities in access to funding, unequal economic benefits of the transition across regions, and data limitations all challenge the ability of cities and regions to effectively transition towards a circular economy.
Over-reliance on downstream waste management
A decade after the first CEAP, the linear economy remains the norm and the circular economy the exception. EU policies have largely prioritised downstream measures such as recycling and waste recovery rather than upstream interventions to reduce resource use and prevent waste generation. Producers have minimal obligations to ensure their products are designed for durability, reuse, and material recovery, while policy targets continue to focus on waste disposal and recycling rather than reduction, repair, and reuse. For instance, the CEAP’s target of doubling the circular material use rate by 2030 only measures the share of recycled and recovered materials, overlooking broader systemic shifts needed for circularity.
Progress towards waste management targets is uneven across Member States, with significant disparities in municipal and packaging waste recycling. In 2023, nine Member States1 were on track to meeting the main recycling targets for municipal waste and packaging waste for 2025, while 18 risked falling short of achieving one or more targets relating to municipal and packaging waste and landfilling (European Commission, 2023[18]). The reuse and recycling of most materials continue to lag despite progress on aluminium, paper and glass – three among the eight most common recyclables with “well-functioning” secondary markets (EEA, 2023[19]). Markets for wood, plastics, biowaste, aggregates from construction and demolition waste, and textiles do not function well due to their small volume, weak demand, lack of competition with virgin materials, insufficient standardisation and inadequate technical specifications.
Additionally, the focus on ensuring sufficient waste treatment capacity has led to excess incineration infrastructure in several EU cities and regions. This overcapacity creates structural barriers to circularity by incentivising incineration over waste prevention and recycling. Municipalities with incineration plants often depend on waste processing fees to recover investment costs, potentially conflicting with waste reduction policies. The sunk costs of incineration infrastructure further discourage investment in alternative forms of waste treatment, while lower incineration fees discourage recycling. Historically, EU funding has focused on waste management infrastructure rather than waste prevention, reuse, and repair: between 2014 and 2020, over EUR 10 billion in EU funding earmarked for the circular economy was predominantly spent on waste management (European Court of Auditors, 2023[20]). The 2021-2027 funding cycle still allows Member States to allocate substantial resources to waste management rather than upstream interventions. This approach risks reinforcing existing inefficiencies rather than fostering systemic circularity.
Misaligned economic incentives
Despite progress on pricing negative environmental externalities, particularly carbon emissions (Box 1.3), current economic incentives still overwhelmingly foster linear resource use. Producers have little financial motivation to use secondary materials, which are often more costly and less readily accessible than virgin resources. Consumers face high costs for repair services, while local authorities prioritise low-cost compliance with statutory waste management targets, often resulting in mixed recycling streams and low-quality recyclables. Public procurement policies, while prioritising the lowest-cost options to preserve public finances, do not often include circular and sustainable criteria.
The EU Emissions Trading System (ETS), implemented in 2005, is an indirect carbon pricing mechanism that sets a gradually declining limit on greenhouse gas emissions from high-emitting sectors and allows companies to trade emission allowances within the system to comply with limits. Since its launch, the EU ETS has helped drive down emissions from electricity and heat generation and industrial production by 47%, while generating over EUR 200 billion in auction revenue for climate action at the EU and Member States level. As of 2027 or 2028, a new and separate ETS for fuel combustion in buildings, road transport and additional sectors (ETS2) will be implemented. In December 2022, the European Parliament and the Council of the EU reached a provisional agreement on the revision of the EU ETS. By July 2026, the EC is expected to assess and report on the feasibility of including waste-to-energy plants in the EU ETS, with the aim of including them by 2028 and a possible opt-out by December 2030.
To protect the global competitiveness of EU companies and avoid carbon leakage, the EC adopted the Carbon Border Adjustment Mechanism (CBAM) Regulation in 2023 as part of the Fit for 55 package, which ensures that imported goods bear a carbon cost equivalent to that of domestic production under the EU ETS. Sectors covered under the ETS, such as industry and construction, can further reduce their carbon footprint by embracing circular economy principles, such as increased recycling, resource recovery, and the use of secondary raw materials.
Source: European Commission (2024[21]), 2024 Carbon Market Report, https://climate.ec.europa.eu/news-your-voice/news/2024-carbon-market-report-stable-and-well-functioning-market-driving-emissions-power-and-industry-2024-11-19_en; European Parliament (2022[22]), Climate change: Deal on a more ambitious Emissions Trading System (ETS), https://www.europarl.europa.eu/news/en/press-room/20221212IPR64527/climate-change-deal-on-a-more-ambitious-emissions-trading-system-ets?mc_cid=f4f31d3687&mc_eid=a2fad960a4
Existing tax structures and subsidies further undermine circularity and sustainability objectives. Despite the EU and its Member States’ long-standing commitment to phasing out environmentally harmful subsidies2, several subsidies may harm the environment, including an estimated EUR 52 billion in fossil fuel subsidies (European Commission and VVA, 2022[23]). Overall, EU Member States currently allocate an estimated EUR 34-48 billion annually to subsidies that contribute to environmental degradation across all major sectors of the economy, including agriculture, forestry, fisheries, transport, and water infrastructure. (WWF and Trinomics, 2024[24])
Furthermore, shifting the tax burden from direct sources such as labour to indirect sources such as consumption, pollution and carbon emissions is a priority for long-term growth (OECD, 2023[25]). The European Green Deal claims that it will create the context for broad-based tax reforms that include shifting the tax burden from labour to pollution (European Commission, 2019[26]). However, environmental taxes remain limited in EU Member States: in 2020, environmental taxes constituted less than 6% of all Member States’ revenue from taxes and social contributions. Of these, more than three-quarters were taxes on energy, while just a fraction were taxes on pollution or the use of resources, with large variations across Member States (IEEP, 2021[27]).
Disparities in access to funding
Cities and regions face major hurdles in securing EU funding for circular economy initiatives. The most frequently cited challenges include complex application procedures (77%), intense competition for limited funds, and insufficient institutional capacity (72%) (Figure 1.6). These obstacles create a cycle in which well-resourced cities and regions obtain funding to advance circular initiatives, while those with weaker capacities struggle to access funding and fall further behind. Despite recent adjustments to Horizon Europe’s application and administrative processes, participant renewal rates remain low, with most beneficiaries having previously engaged in EU research and innovation programmes on the green transition (European Commission, 2024[28]). The programme’s complexity, fragmented topics across multiple instruments, and large project scales hinder participation by smaller local authorities and SMEs. Varying eligibility and evaluation criteria and funding timelines further complicate knowledge transfer. While EU Missions3 seek to broaden stakeholder engagement, they are not yet fully understood and used by local authorities and communities (European Commission, 2024[29]).
Note: Results based on a sample of 64 respondents that responded “Very important obstacle” and “Important obstacle” to the question “What are the main challenges and obstacles to accessing EU funds?”.
Source: OECD (2020[2]), OECD Survey: The Circular Economy in Cities and Regions in the European Union (EU).
Labour market disruptions and skills mismatches
While the circular economy is projected to yield net economic benefits across the EU, impacts will vary across regions, sectors, and social groups. The circular transition is expected to lead to job losses in resource-intensive sectors and job creations in less resource-intensive sectors such as sewerage, waste, and repair (European Commission, 2018[30]). The share of employment in circular business models varies between EU Member States and regions, with some benefiting from new opportunities while others face job displacement and skills mismatches (CIRCTER and ESPON, 2024[31]). Cities and regions that are not “net winners” of the circular transition may experience job and income losses, as well as a skills mismatch between workers’ expertise in traditional linear roles and the demands of emerging circular economy positions. Workers in high-emission industries who lose their jobs experience an average drop in annual earnings of 36% over six years, compared to 29% in other industries (OECD, 2024[32]). Although assessments are lacking for the circular economy specifically, existing analyses anticipate job creation in the waste management sector, for example, where average incomes are significantly lower compared to the industrial sector, potentially leading to similar losses in individual workers’ incomes (Wilts, 2024[33]).
Current EU support mechanisms for the net-zero transition, notably the Just Transition Mechanism and Social Climate Fund, focus on phasing out carbon-intensive industries, while they do not address the labour market shifts required for a less resource-intensive economy (e.g. the re- and up-skilling of workers in sectors affected by the circular transition such as manufacturing and construction). Furthermore, most circular skills development initiatives are concentrated at higher education level (Wilts, 2024[33]), despite low-skilled workers facing a greater gap than high-skilled workers in meeting future qualification requirements (OECD, 2024[32]). Existing circular economy policies and legislation often lack a granular understanding of how the transition to a circular economy affects different regions and cities. Without territorial insights, policy interventions risk misalignment with local needs.
Lack of regional and local data
The lack of granular data at local and regional levels is a significant challenge for implementing a territorial approach to the circular economy. The EU Circular Economy Monitoring Framework (CEMF) and Eurostat primarily provide national-level data, limiting their usefulness for policymakers working at or with subnational levels of government. While some surveyed cities and regions (e.g. Budapest, Hungary; Castile and León Region, Spain; Lappeenranta, Finland) have adapted the CEMF to create their own indicators for tracking progress towards a circular economy, the applicability of CEMF and Eurostat data to cities and regions is limited. Many municipalities collect disaggregated data, but these are often not reflected in EU-level reporting. Yet data for some indicators, such as those relating to waste and recycling, are often initially collected at municipal or regional levels before being aggregated. In some cases, data are publicly available at a disaggregated level but are not reported as such in the CEMF or Eurostat. For example, the data source mapping in Henrysson et al. (2022[34]) showed that data in Sweden were available at municipal level for 8 out of 24 CEMF indicators. Without territorial data, EU policies risk misalignment with local conditions, making it challenging to track progress and tailor interventions effectively.
Addressing these challenges requires an integrated territorial approach that matches policies, legislation, economic instruments, data frameworks, funding programmes and other tools for the circular economy with local and regional realities. The EC, national and subnational governments, firms and citizens can take complementary measures to accelerate progress towards the circular economy across levels of government in the EU. Solutions are provided based on the OECD 3Ps Framework: people and firms, policies and places.
Source: Author’s elaboration
People and firms
Making the circular economy accessible and affordable to people
Provide consumers in cities and regions with easy access to clear, standardised and simple information on product durability, repairability, and recyclability: the EC has already set up several labels and certificates related to sustainability, such as the EU Ecolabel and Energy Label. However, there are no labels or certificates dedicated to the circular economy that would inform consumers about the origin, performance in use, lifetime and end-of-life of products, and that are known to and understood by consumers to the point of influencing their choices (Laubinger and Börkey, 2021[35]). In line with the Ecodesign Directive and its emphasis on the “right to repair”, repair services should be easily accessible and more affordable than buying new products. Separate collection instructions for recycling should be easy to understand, and information on recycling and recovery outputs should be shared to increase trust and raise awareness of the environmental benefits of individual actions.
Enhancing the competitiveness of the circular economy
Address split incentives by phasing out environmentally harmful subsidies (e.g. in fossil fuels and agriculture): the EC could do this by applying the “Do No Significant Harm” criteria of the EU Taxonomy to EU and government budgets and excluding “Always Environmentally Harmful” activities from receiving public funding. The EU could continue working with Member States towards a legally binding framework to reduce environmentally harmful subsidies at EU and national levels. Because cities and regions also provide subsidies to citizens and businesses, the EC could provide guidelines for subnational governments on applying the EU Taxonomy to subsidy design and implementation. A gradual, co-ordinated and planned reduction of these subsidies at the national level would help align policies with circular economy and carbon neutrality objectives while freeing up fiscal resources for investments in resource and carbon-efficient economic activities.
Boost the competitiveness of circular businesses by pricing negative environmental externalities. This can be done through taxes, which would incentivise the use of secondary materials that are currently often more costly than virgin ones. Similar approaches could be applied to single-use products (to discourage their use) and to landfilling and incineration (to encourage recycling, reuse, and waste prevention). The EC could explore the introduction of EU-wide minimum tax rates on virgin materials and products, single-use products, and waste disposal methods such as landfilling and incineration to encourage reuse and recycling. The EC could also consider encouraging Member States to apply reduced or zero Value Added Tax (VAT) rates on circular materials, products and services, although limited pass-through to consumer prices and potential rebound effects on primary and secondary material consumption may diminish the expected environmental benefits of VAT exemptions (OECD, 2024[36]), and the 2024 revision of the EU VAT Directive would delay the legal basis for such measures for several more years. National authorities would be responsible for imposing taxes on virgin materials and products or setting higher fees for landfilling and incineration. A minimum tax on virgin materials used in construction aggregates could be a good starting point given that the construction sector is less prone to relocation (and material leakage as a result) than other industries.
Enable circularity in global trade by implementing a raw material border adjustment mechanism. The EU could investigate the scope to adopt a similar instrument to the Carbon Border Adjustment Mechanism (CBAM)4, which is designed to tackle carbon leakage, to deal with material leakage. Concurrently, the EC could establish guidelines for targeted tax rebates for industries most exposed to international competition to help protect vulnerable sectors. Mainstreaming the adoption of material passports (e.g. as foreseen in the Batteries Regulation) in other sectors could help mitigate the risk of material leakage from extractive activities outside the EU while supporting more transparent value chains
Reduce the resource and carbon intensity of the economy by strengthening the EU Emissions Trading System (ETS)5: this could involve further lowering the cap on annual allowances or reducing the number of free allowances allocated to certain sectors such as manufacturing. Alternatively, an explicit carbon tax across all sectors could be introduced at the EU level, making CO2-intensive products and materials (e.g. virgin plastics) more costly than relatively less CO2-intensive ones. OECD (2023[37]) calls for extending carbon pricing to agriculture, which can incentivise more resource-efficient and regenerative approaches such as reducing food and biomass waste by repurposing agricultural residues for bioenergy and compost. The OECD also calls for greater harmonisation of carbon prices before raising them gradually, highlighting that industry continues to receive most emission allowances free of charge and that the uneven coverage of the ETS across sectors and differences across national tax systems impose heterogeneous abatement incentives across countries and activities. Sectors covered by the ETS (e.g., industry and construction) can further reduce their carbon footprint by embracing circular economy principles such as increased recycling, resource recovery, and the use of secondary raw materials.
Facilitate the re-skilling and up-skilling of workers to equip them with the cross-cutting and sector-specific skills needed for the circular economy: firms play a role in fostering competencies in problem-solving, resource management, and social skills, alongside technical expertise in areas such as eco-design, life-cycle assessment, and circular business models. National governments and the EC can support the re-skilling and up-skilling of employees through partnerships with universities, vocational training centres, and industry associations, or by investing in training programmes and certification schemes.
Policies
Driving circularity upstream
Define policies on a sectoral basis, focusing on materials rather than waste management: these policies could cover key sectors such as water supply, sewerage, waste management and remediation, construction and real estate, services, manufacturing, and ICT. The aim would be for national governments to move from lower levels of the circular economy hierarchy (e.g. recycling) to higher levels (e.g. waste prevention), with clear targets on resource use reduction, environmental impact, economic output, and job creation. Synergies across value chains (electronics and ICT, batteries and vehicles, packaging, plastics, textiles, construction and buildings, and food, water, and nutrients) should be taken into account. A focus on product groups (e.g. electronic equipment or construction aggregates) could also be further considered as the EC intends to do with the forthcoming Circular Economy Act and has started doing with the Batteries Regulation.
Expand the stringency and scope of Extended Producer Responsibility (EPR) schemes beyond packaging: the EC could consider new EPR schemes covering other sectors than packaging and include eco-modulated fees from the outset for firms to design more repairable and durable products. Eventually, EPR schemes could move towards full producer ownership of materials, which would imply that companies selling products on the market are entirely responsible -financially or organisationally- for the appropriate management of materials at the end of product life cycles. Mandatory EPR schemes with eco-modulated fees and full product ownership would help reduce waste generation and improve the reuse and recycling of materials, reducing the amount of waste managed by local authorities and helping national governments to achieve statutory recycling and landfilling targets.
Strengthen Green Public Procurement (GPP), including circular criteria for new sectors and product groups: among the EU cities and regions surveyed, 61% report applying circular criteria to construction and buildings in public procurement, followed by food, waste and nutrients (52%) and electronics and ICT (48%). Circular economy criteria within Green Public Procurement (GPP) can help accelerate momentum for more sustainable and eco-friendly products and services that strengthen resilience to climate shocks and indeed economic, supply, shocks. While GPP may, but not necessarily, results in higher public procurement costs in the short term, it holds great potential to deliver longer term (economic and social) benefits including to the public purse, that offset short term costs. To support momentum, including on potential efforts for mandatory adoption, the EC and national governments could provide further guidance to subnational governments on circular criteria needed for specific products and services.
Prevent excess waste-to-energy capacity in treatment plants, discourage over-reliance on energy recovery, and promote waste reduction and recycling: this could include a new reporting requirement by the EC as part of current reporting requirements on municipal solid waste generation at regional level. These thresholds could be implemented gradually over time and would avoid further (over)investment in energy recovery facilities. Enforcing binding limits on energy recovery capacities in EU regions and cities could eventually involve revising the Strategic Environmental Assessment Directive to include related targets. Because technical standards alone may not be sufficient, spatial planning strategies could also be adopted by local governments to ensure that incineration and energy recovery capacity align with actual national and regional needs. The EC could also gradually incentivise the restriction and eventually ban the incineration of recyclable material to further increase recycling rates. A first step in this direction was the introduction of a levy on non-recycled plastic packaging waste generated by Member States in 2021.
Embed the circular economy in EU Missions: these are a co-ordinated effort by the EC to pool the necessary resources in terms of research and innovation, policies and regulations, and other activities to bring concrete solutions to some of the EU’s greatest challenges (e.g. the 100 Climate-Neutral and Smart Cities Mission). Given the limited influence of aspirational EU targets (e.g. doubling the circular material use rate by 2030) on local policymaking, this approach would make high-level goals more tangible and actionable for local and regional governments. For instance, setting a target for at least 100 cities to achieve 50% reusable packaging or reduce packaging waste by 50% would provide a clear and compelling objective and complement the Packaging and Packaging Waste Regulation. Targets should be straightforward and aligned with the competencies of local and regional authorities. For example, in line with the forthcoming Circular Economy Act, objectives such as achieving a given share of secondary raw materials in new buildings or public procurement could be considered, as well as more upstream targets related to reuse, repair, and refurbishment.
Continue shifting EU funding priorities from hard to soft infrastructure, ensuring that circular economy investments focus on upstream (e.g. waste prevention) and midstream (e.g. reuse and repair) activities: this could also support non-technological solutions, including capacity building, skills development, and knowledge-sharing initiatives, to overcome capacity gaps at the subnational level. Eventually, the EC could explore options to leverage other EU funding schemes for local, bottom-up projects, such as Cohesion and Modernisation funds, or tailored technical assistance through the Technical Support Instrument of the Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs (DG GROW).
Places
Ensuring a just and regionally balanced circular transition
Conduct territorial assessments to analyse the impact of the circular transition on economic output, employment, and skills across EU Member States: through these assessments, national governments could identify the current and future implications of the circular transition for industries, workforce groups and communities, and support the development of clear definitions to inform and guide future policymaking. National authorities should then ensure that the learnings of territorial impact assessments conducted at EU level effectively inform national circular economy policies, including innovation policies and re-skilling programmes. This would promote circular economy initiatives that are place-sensitive, i.e. that consider the territorially differentiated implications of the circular transition.
Support the EU regions most adversely affected by the circular transition: programmes such as the CCRI, Horizon Europe, Interreg, ERDF, LIFE, Erasmus+ and NextGenerationEU could allocate dedicated resources to regions facing structural challenges in adopting circular economy practices. This could include ringfencing a share of funds for regions lagging on the circular economy, providing targeted support to “net losing” regions (e.g. in applying to EU funding programmes), or identifying priority regions for investment as part of the forthcoming Start-up and Scale-up Strategy planned for the end of 2025. The disbursement of funds could be made conditional to the achievement of pre-determined targets by funding beneficiaries whenever this is possible. Administrative processes to access funds, especially to allow smaller, less well-resourced cities and regions to respond to the funding calls, could be simplified and more effective guidance can be provided. In addition, the EC and national authorities could encourage the expansion of the mandate of regional and local economic development agencies and public banks to support vocational training, lifelong learning programmes, and local industries to ensure the alignment with capacity-building offers with labour market needs. Such efforts should focus on low-skilled workers, who face the greatest re-skilling and up-skilling challenges in adapting to circular economy demands.
Broaden the scope of the EU Just Transition Mechanism from the current focus on fossil fuel-extracting regions to those dependent on resource extraction and resource-intensive manufacturing: this would compensate cities and regions that do not belong to the category of “net winners” of the circular transition. In particular, tailored re-skilling and up-skilling programmes could be developed by the EC and national governments to equip workers with the competencies needed for circular economy practices, such as eco-design, reverse logistics, and sustainable material management. Special emphasis should be placed on low-skill occupations, where the gap between current and future qualification requirements is more pronounced compared to high-skill occupations (OECD, 2024[32]). More broadly, the EC forthcoming Circular Economy Act could provide a clear and predictable framework and ensure certainty in circular economy policy to encourage private investment in circular technologies, business models, and skills development.
Improving granular data for better decision-making
Feature subnational disaggregated indicators in the Circular Economy Monitoring Framework (CEMF): this can be done by publishing local and regional level data (e.g. on municipal waste, gross value added and employment) that is already collected by National Statistics Offices but available in the CEMF at aggregated national level. The CEMF could also integrate or refer to such indicators developed by complementary initiatives, such as the ESPON Thematic Action Plan on Climate Neutral Territories6 (CIRCTER and ESPON, 2024[31]). The range of indicators with subnational disaggregated data available in the CEMF can be further expanded by exploring options to collect new indicators at the subnational level, and estimating regional values based on national data for indicators that are not yet collected at the subnational level (e.g. on material consumption), using data downscaling methodologies. National authorities can strengthen their own reporting on circular economy indicators to support place-sensitive circular economy strategies, evidence-based decision-making and progress tracking on circular economy goals by enhancing data collection methodologies, integrating digital tools, and standardising indicators to improve the accuracy of circular economy statistics. Additionally, investing in experimental data methods, such as big data analytics and remote sensing, could support the collection of new indicators at the subnational level.
References
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← 1. Austria, Belgium, Czechia, Denmark, Germany, Italy, Luxembourg, The Netherlands, and Slovenia.
← 2. Environmentally harmful subsidies cover direct subsidies as well as tax exemptions and reductions, reduced services charges, and other types of implicit and explicit subsidies.
← 3. EU Missions are a novelty introduced by Horizon Europe (2021-2027) as a new way to bring concrete solutions to some of the EU’s greatest challenges. The five missions include: (i) Adaptation to Climate Change: support at least 150 European regions and communities to become climate resilient by 2030, (ii) Cancer: working with Europe's Beating Cancer Plan to improve the lives of more than 3 million people by 2030 through prevention, cure and solutions to live longer and better, (iii) Restore our Ocean and Waters by 2030, (iv) 100 Climate-Neutral and Smart Cities by 2030, and (v) A Soil Deal for Europe: 100 living labs and lighthouses to lead the transition towards healthy soils by 2030.
← 4. To protect the global competitiveness of EU companies and avoid carbon leakage, the EC adopted the Carbon Border Adjustment Mechanism (CBAM) Regulation in 2023 as part of the Fit for 55 package, which ensures that imported goods bear a carbon cost equivalent to that of domestic production under the EU ETS.
← 5. The EU Emissions Trading System (ETS), implemented in 2005, is an indirect carbon pricing mechanism that sets a gradually declining limit on greenhouse gas emissions from high-emitting sectors and allows companies to trade emission allowances within the system to comply with limits.
← 6. ESPON Thematic Action Plan on Climate Neutral Territories has generated 10 downscaled circular economy indicators addressing key aspects such as material consumption, waste generation, and consumption footprint at the NUTS 3 regional level, filling critical subnational data gaps in the CEMF.