Circular economy transition in Europe requires ambitious policies beyond climate mitigation

Abstract

This paper provides a comprehensive assessment of forward-looking circular economy (CE) transition policies in Europe by coupling a novel global CE database with a dynamic computable general equilibrium model. We investigate how climate policies within the EU Green Deal interact with the circularity agenda, and how various CE interventions, including supply- and demand-side interventions, can be used to complement existing mitigation goals. While climate policies have a relatively minor impact on material use patterns, CE policies could help achieve mitigation goals, highlighting the complementarity of both policies. To be effective, CE policies should include both supply- and demand-side interventions, which would achieve absolute decoupling. While the overall economic cost of the combined CE policies does not exceed 1 % of GDP in 2030, a rising wage gap could be a concern. Using the revenues created by CE fiscal policies to reduce labor taxes eliminates GDP losses and lowers negative labor effects.