Energy market dynamics and institutional sustainability: How affect the Europe's circular economy

Abstract

This paper considers socioeconomic, environmental, institutional and demographic issues necessary for the circular economy (CE) transition, employing a sample of 27 European Union (EU) countries and the UK using panel data method. Environmental degradation, asymmetry and inequality in the recovery conditions from the COVID-19 pandemic, which have been particularly aggravated over the last three years (2019–2022), as well as the energy crisis in the Eurozone raise significant challenges for social cohesion and CE policies. This analysis aims to examine whether a change in the structure of the energy markets, densely populated areas, environmental performance, institutional quality, social protection and innovation affect the CE. The results reveal that circular activity is robustly and positively affected by factors such as institutional quality, resource productivity and entrepreneurship. As the level of social protection increases, the percentage of the population willing to adopt the CE principles increases, while EU countries consume more raw materials than they can actually recycle. An increase of 1% in the market share of the largest electricity production companies and the market share of companies supplying the largest volume of natural gas is linked to a reduction of 0.30% and 0.33%, respectively, in the circularity rate. This suggests that under imperfect competition in energy markets, there are signs of undermining the efforts of EU countries to collect waste for recovery.