Circular economy: Navigating the evolving global policy landscape

Circular economy policies are evolving rapidly. Industry leaders are urged to consider the implications to their sustainability strategies.

In brief

• Circular economy policies are fragmented and are rapidly evolving. This can be challenging for global corporations to navigate.
• This article aims to provide a holistic view of the global circular economy regulatory landscape and how it has matured over the years.
• Furthermore, it provides suggestions on how businesses can adapt their circular economy efforts.

Historically, geographic limitations and scarcity of natural resources have been key drivers for implementing circular economy policies. Japan started early efforts toward a circular economy in the 1990s. Now, the European Union (EU) and its Member States are driving the global momentum toward a circular economy, with efforts focusing on reducing raw materials consumption and increasing resource efficiency. While waste management and recycling policies have been the cornerstone of the circular economy regulatory framework, the policies have gradually evolved toward extended producer responsibility, eco-modulation and eco-design.¹

This trend indicates a general shift in circular economy thinking from end-of-pipe measures toward at-source or preventative measures. A shift toward eco-design was motivated by EU research indicating that 80% of a product’s environmental impact was determined at the design phase.² In recent years, legislators are focusing on holistic material traceability efforts inclusive of digital tools, which could shift toward policy measures based on predictive analytics.³

Europe

European countries have had waste and recycling policies since the mid-1970s and introduced product design policies in the mid-2000s. However, circularity did not enter the policy discourse until the mid-2010s, following which several circular economy policies and measures were implemented rapidly. The European Commission’s 2019 Green Deal Proposal illustrated its ambitious goal to make Europe the first climate neutral continent by 2050,5 with circular economy as a key pillar in this transition. The Commission subsequently published the second Circular Economy Action Plan in March 2020.6

Even more policy measures and instruments aim to support this transition by embracing circularity. Some of the most ambitious policy measures are the sectoral policy proposals, such as the Sustainable Products Initiative, which will revamp the existing eco-design framework by embedding circularity and implementing digital product passports. It has also introduced a proposal for new consumer rights and a ban on greenwashing7 that will oblige companies to provide consumers with information on products’ durability and repairability.

Furthermore, the new EU taxonomy framework will include disclosures on circular economy and resource efficiency parameters. In addition to measures set at the EU level, countries such as France and Germany have introduced national circular economy policies. The enhanced ambition and volume of measures coming from the EU is reflected in a high level of circular economy regulation maturity in most EU countries (Figure 2). Surrounding European countries, such as Norway, the United Kingdom and Switzerland, also are following suit. Countries within Eastern Europe effectively transpose EU circular economy legislation but do not appear to be publishing their own roadmaps or strategies. 

North America, Latin America and the Caribbean

In the US, the federal government does not directly address circular economy-related policies, but it has been embraced in the Sustainable Materials Management approach since 2009.⁸ The earliest and the most advanced effort was the National Recycling Strategy, published by the Environmental Protection Agency in 2011,⁹ followed by a draft published in 2020 for public comment.¹⁰ Additionally, there are ambitious policy measures at the state and local level to drive circularity, such as Colorado’s extended producer responsibility for printed paper and packaging,¹¹ which may encourage others to states to follow suit. California incorporated a legislative package in 2021 that promoted circular economy efforts to raise consumer awareness and industry accountability, complementing a bold $270 million investment to modernize recycling systems.¹² It is important to be cognizant of the bipartisan support required for future circular economy efforts to be successful.

Canada’s Action Plan on Zero Plastic Waste Strategy aims to reduce the harmful environmental impacts of plastic waste through greater prevention, collection and value recovery to achieve a more circular plastics economy. Canada recently announced a new regulation that bans single-use plastics, planned to be implemented in December 2022. It is expected to eliminate over 1.3 million tons of hard-to-recycle plastic waste and over 22,000 tons of plastic pollution, equivalent to over a million garbage bags of litter over the next 10 years.¹³

Several Latin American and Caribbean countries have published roadmaps and strategies to implement circular economy policies as drivers for sustainable economic growth, with some countries already transposing measures into law, such as Ecuador, which in 2021 published the Organic Law for an inclusive Circular Economy.¹⁴ There are also efforts to develop coordinated action at the continental level. The Latin America and Caribbean Circular Economy Coalition, formed by policymakers, academics and other stakeholders in cooperation with the Ellen MacArthur Foundation, published a strategic vision for the region to become more circular, with measures adapted to the specificities of the region.¹⁵ Several Latin American countries are embracing circularity as a driver for economic growth and environmental protection and are building robust policy frameworks to support this vision, therefore increasing the area’s maturity level.

Asia-Pacific (APAC) and Africa

Initial efforts in APAC include China’s Circular Economy Promotion Law (2000) and Basic Act on Establishing a Circular Society (2000). In China, circular economy is promoted as a top-down national political objective, while in other areas and countries, such as the EU, Japan, and the United States, it is a tool to redesign bottom-up supply chains.16 In 2017, China introduced the National Sword policy restricting the import of secondary raw materials for processing. This policy had global repercussions, with researchers estimating a 23.2% increase in plastics sent to US landfills.17 Furthermore, according to the All India Plastics Manufacturers’ Association, India’s 2019 plastic ban would result in increased packaging costs, 100,000 jobs lost and a loss of US$650 million in the country.18 Circularity is gaining prominence in Asian economies as a future growth strategy, and there are several roadmaps being introduced at the jurisdiction level. According to EY research, mainland China, Japan, Mongolia, Taiwan, South Korea and the United Arab Emirates have implemented jurisdiction-level circular economy policies in the APAC region.

Circular economy efforts in Africa started with several measures to tackle plastic pollution through taxation and bans of single-use plastic. A mature roadmap was implemented in 2016, with the National Action Plan for Sustainable Consumption and Production in Egypt. In 2019, the African Development Bank announced that it would no longer be financing coal projects,19 and research supports the idea that a circular economy approach can enable greater renewable energy uptake and transitioning.20 Europe’s Green Deal will also have repercussions in African countries, with high probability of value chain relocation to African countries.21 In March 2022, during the United Nations Environment Assembly meeting in Nairobi, 175 countries agreed to negotiate a new global treaty on plastic pollution. This treaty would include binding measures covering the entire lifecycle of plastics. In emerging economies, circular economy efforts are implemented predominantly by the informal sector. EY research indicates that Madagascar, Rwanda and Tunisia are several countries in Africa that have implemented a national circular economy policies. 

Evolving trends and how companies can adapt

As companies prepare for the growing number of regulatory requirements linked to circular economies, we have the following recommendations:

1. Develop strategies aligned with a country’s maturity level. This would help companies to understand and navigate the underlying evolving regulatory landscape.
2. Identify policy or infrastructure gaps and take necessary preventative actions. Companies operating in areas with barriers to proper recycling and re-processability have a higher possibility of being impacted by legal liabilities, litigation or more stringent legal requirements.
3. Regional or local policies may have a national or global impact. For example, “right to repair” policies in certain US states will likely motivate companies to provide the same “repair” information to all US customers.
4. Build relationships and seek opportunities to cooperate with value chain and technology collaborators to prolong materials and resources in the value chains and build data-driven strategies.
5. Leverage digital tools to enhance compliance, minimize administrative burdens and improve transparency. Digital tools used to improve transparency over material flows will be pivotal in helping companies understand their material footprint, increase recovery rates and reintegrate material into the value chain.

In addition to regulatory drivers, evolving consumer preferences will potentially drive companies toward more sustainable and circular business models through purchasing power, growing concern and increased demand to reduce the environmental footprint and material impact.

Industry cooperation, either through coalitions or developing product standards, is an important driver to develop a level playing field and drive competition toward more circular business models. Industry coalitions, such as the Alliance to End Plastic Waste or the U.S. Plastics Pact, can be an effective mechanism to address regulatory gaps and build a unifying organization. However, prior to joining such initiatives and coalitions, buy-in from internal stakeholders can be a challenging exercise.

Nicole Ray, Mayank Shekhar, Shubhra Verma and Marina Guajardo also contributed to this article.