How we can get the economy to work for the circular economy

For most of us who work on circular solutions and wish to see Europe become a truly circular economy, it’s safe to say that we are more familiar with the ‘circular’ part of this term rather than the ‘economy’ part. We know what policies can make products and systems circular, but we often lack the understanding of how to get the economics right to support these circular systems. If the saying ‘money talks’ is true, then most of us are not speaking the language fluently yet.

If we want to make true progress towards a more circular economy, then it’s absolutely imperative that this changes – that we begin to ensure the social benefits of zero waste sit equally alongside the economic gains. This is especially relevant now, when competitiveness has become the dominant narrative in Brussels and beyond. At the same time, Europe remains dependent on imported critical materials, making waste and resource efficiency not just environmental issues, but strategic economic ones.

But how can we present the circular economy as a savvy economic decision when our society is currently embedded within a linear economy, which prioritises a throw-away culture? We must get better at explaining who carries the true costs of each single-use item we produce and consume. On paper, it’s municipalities and waste companies that sit at the end of the chain, but let’s not forget that the money from public budgets comes from us, local taxpaying citizens. So, how exactly can we begin delivering both circular solutions and economic solutions, at a critical time where Europe’s economy is desperately in need of help?

If we take inspiration from the waste hierarchy, a framework created to manage waste sustainably, and prioritise prevention, reduction and reuse, we can propose concrete policy measures that can be scaled up across Europe to make the circular economy more financially attractive.

Extended Producer Responsibility (EPR) and the polluter-pays principle

EPR aims to implement a polluter-pays principle to help cover the costs of waste management. In practice, this means that manufacturers are responsible for the waste management costs of their products, which encourages them to prioritise reusability and recyclability. Although EPR has been in place in the EU for several years, severe limitations continue to exist across all member states: waste is continuing to increase, recycling has stagnated, and circularity is being hampered rather than harnessed. This is not just an environmental challenge – current EPR systems also limit Europe’s ability to retain valuable materials for its own industries.

In order to address these shortcomings, Zero Waste Europe outlined a new model for EPR, with the aim of channelling more funding to support circular solutions on the ground. To drive real waste reduction, we propose splitting EPR fees into two distinct budgets: one for waste management (as is the current status quo) and another for waste reduction.

As an interim measure until 2030, member states should establish a temporary “fund for the transition to circularity”, earmarking a minimum percentage of the annual budget of producer responsibility organisations (who manage EPR systems) for reduction and reuse activities, unless they already have binding reuse and reduction targets in place. Over time, aligning these funds with EU-wide objectives can help ensure that valuable materials stay within Europe’s economy, supporting both circularity and industrial resilience.

It’s at the local level that the impacts of waste generation are felt the most, especially with a growing lack of funding to cover these costs, thanks in part to the ineffectiveness of EPR systems today. In order to counteract this trend, more and more cities are beginning to examine potential financial incentives for waste prevention and the reuse of materials.

For example, the German university town of Tübingen has had a municipal packaging tax in effect since 2022, which was also implemented in the town of Konstanz in 2025. In practice, this is an additional fee charged on drinks and food that are consumed on the premises or near the point of sale. The tax amounts are, for example, 50 cents extra for disposable cups and food containers, and 20 cents for disposable cutlery, regardless of the material. Each business decides if they pass on the extra charge to the customer or not, but annually they must report the volumes of packaging items sold to the city and pay the subsequent fees, which go into the general city budget.

The effective collection of different waste materials for recycling is the foundation of a strong circular economy. When more high-quality, recyclable materials are collected, municipalities spend less money disposing of unsorted, residual waste. The economic gains of recycling are favourable; however, municipalities can only really see the advantages once the collection system is up and running. It still takes money and investment to get the extra bins, trucks and communications required to transition into these new systems. To help encourage the right investments and steer high performance, regions should be looking to introduce reward and penalty schemes for their municipalities.

In Sardinia for example, where the island separately collects over 75% of municipal waste, the region uses a system that gives discounts in annual disposal fees to high performing municipalities, and extra penalties for those with poorer performance. The 5% penalty may seem small, but when separate collection is low, this is a higher charge on the inevitably higher volumes of residual waste that each municipality must dispose of.

Going back to where we started; if the saying ‘money talks’ is true, then we need it to start saying what we want it to say. The circular economy is 50% economy, and our current economic model is still skewed towards linear business practices that produce waste and pollution at mass scale. As I’ve outlined above, this is beginning to change. Policymakers at the city, national and European level are becoming more aware and confident of the economic tools we have available to help accelerate the circular transition in Europe today.

Importantly, keeping materials circulating within Europe also strengthens the resilience of its economy and its capacity to manage future supply disruptions.

With the global economy set for a shock in the coming months, it is more imperative than ever to reduce our resource dependency – making Europe more circular makes Europe more independent and resilient, whatever may happen in the future.

The views expressed in this #CriticalThinking article reflect those of the author(s) and not of Friends of Europe.