European Union Circular Economy Transition: Full Speed Ahead
New rules will affect several different sectors. It is a crucial time for U.S. businesses to engage with the EU on circular economy.
The transition to a circular economy is one of the pillars of the European Commission’s Green Deal. By moving away from the produce – use – dispose model, in favor of a circular approach to consumption the Commission hopes to make significant cuts to the EU’s greenhouse gas emissions coming from virgin raw material extraction and hopes to decrease pollution and associated biodiversity loss. While the transition will require many changes and possibly a big lift for industry, according to the Commission’s estimates, as articulated in its March 2020 Circular Economy Action Plan (CEAP), a “progressive yet irreversible transition to a sustainable economic system” will create approximately 700,000 new jobs and grow Europe’s GDP by a total of 0.5 percent by 2030.
To achieve the circular economy transition, the Commission will be putting forward several pieces of legislation over the course of 2022. On 30 March, the Commission published the “Sustainable Products Initiative” (SPI) which is one of the flagship initiatives of the CEAP. The SPI entails a proposal to revise the EU’s Ecodesign Directive which would expand its scope to cover all products except food, feed and pharmaceuticals, and which would introduce a range of new product category specific rules on sustainable design features, recyclability, and labeling. Importantly, the expanded Ecodesign Directive is best seen as ‘shell’ as the specific rules for individual product categories will not be regulated here. Instead, they will be regulated through secondary legislation – delegated acts – set by the Commission and Member States. The proposal is accompanied by a rolling work plan which will identify product categories and timelines for the specific product categories. The delegated acts will in turn, elaborate product requirements relating to:
• durability and reliability,
• upgradability, reparability, maintenance and refurbishment,
• presence of substances of concern,
• energy and resource efficient,
• recycled content,
• remanufacturing and recycling,
• carbon footprint,
• generation of waste materials.
Beyond the SPI, the Commission is also working to introduce rules to regulate green claims (to combat ‘greenwashing’) as well as to introduce a financial ‘taxonomy’ to determine which investments support EU objectives to protect and restore biodiversity and ecosystems; transition to a circular economy; and prevent and control pollution (following the creation of similar taxonomy for investments on climate change mitigation and adaptation).
Rules like the ones forthcoming under the SPI will result in an increased demand for secondary raw materials - i.e. recycled as opposed to virgin-extracted raw materials. In this sense, the success of the circular economy transition will, to a great extent, depend on countries’ capacity and ability to recycle plastics, paper, metal, rare earths etc. in a sustainable and economical way. To that end, the EU is putting in place tools to increase the supply of crucial secondary raw materials within the EU while simultaneously investing in critical R&D and focusing on developing new standards that will be needed to support the transition to circularity.
A crucial piece of the puzzle here is the Commission’s recently proposed revision of the 2006 Waste Shipment Regulation which aims to: remove existing barriers to the free shipment of waste between Member States, severely limit possibilities to ship waste to non-OECD countries from the EU, and to make it more costly and burdensome to ship waste to OECD countries from the EU. If the proposal is enacted, it will create a new obligation for EU waste exporters to audit waste processing facilities they ship to in OECD countries by way of independent auditors against EU criteria for environmental sustainability. In other words, a company selling waste from the EU to a U.S. processing plant would have to pay for audits to verify the environmental credentials of its U.S. partners in this case. While EU officials and Members of the European Parliament have emphasized the need for these measures to be compliant with World Trade Organization rules, it is easy to see how rules like this might discourage exports and encourage EU waste sellers to find new within-EU markets for their exports.
While the ambition to boost within-EU availability of waste is clear, according to some industry commentators the EU does not currently poses sufficient recycling capacity to process all of its waste domestically. To support the technological leap required to make circular value chains a reality, the Commission is supporting the creation of sector specific industry alliances (for example, on batteries, critical raw materials and circular plastics) which emphasize the need to develop new and better recycling technologies and the need to strengthen Europe’s industrial base. For example, the EU’s Battery Alliance – perhaps the most developed of these initiatives at present – has allowed Member States and European industry to apply special state aid rules to two Important “Projects of Common European Interest (IPCEI)” to mobilize over €5.1 ($5.8) billion of public and up to €14 ($16) billion worth of private investment to research new battery raw materials technologies, cell technologies, battery systems, and battery recycling.
Early birthing pains
Looking beyond the implications that the EU’s agenda can have on international trade, it is also important to note that at this stage, the circular economy transition is testing the strength of the EU’s Single Market. The EU’s foundational, legally enshrined doctrine that goods, capital, services, and people should be able to circulate freely within the EU. While many of the new product policies mentioned above are expected to be Regulations as opposed to Directives, a legal instrument that is generally better for calculability and is preferred by businesses as it implies a uniform application of rules across the EU, there are certain aspects of the circular economy that are currently regulated through Directives, allowing for a non-uniform application of some rules.
One area that has received particularly close attention in past years is how Member States implement EU level rules on packaging and packaging waste (as set out in the Waste Framework Directive and the Packaging and Packaging Waste Directive). As stands, some provisions in these directives have allowed Member States to take diverse approaches to implementing rules on packaging ‘essential requirements’ (related to packaging weight for example), to packaging reuse quotas, and even to labelling requirements for recycling. A practice that has meant that companies are sometimes faced with divergent rules for different in-EU markets. These tendencies have prompted EU and U.S. industry associations alike to call on the European Commission – which safeguards the integrity of the Single Market – to take action to stop further fragmentation of EU rules. Notably, in June of 2021 over 60 European industry associations (including the American Chamber of Commerce to the EU) and companies from across the packaging and consumer product manufacturing industry called on the Commission in a joint letter to take action to combat practices like this, providing several examples of divergent national rules from different Member States.
Engaging with the EU on circular economy
In sum, the EU’s circular economy transition involves a wide range of policies. New consumer rights relating to repairability and new labeling requirements to better reflect the environmental impact of products are all on the table. As are more stringent recycling obligations, packaging rules and strategic investments into circular economy R&D. The changes taking place in the EU at present can oftentimes be hard to follow and fully understand in their entirety from the United States. While U.S. and EU industry are aligned on some items, the series of upcoming public consultations on the SPI for instance, will provide valuable opportunities for U.S. businesses to speak-up and highlight the contribution that transatlantic trade can make to ensuring that the EU’s transition to a circular economy is not inward-looking and insular.
• On the initial impact assessment and public consultation page of the Sustainable Products Initiative you can find comments by businesses, civil society and public authorities. To see how the specific proposals may impact your products please consult the Commission’s announcement of the Sustainable Products Initiative and along with the specific legislative proposal to revise the Ecodesign Directive.
• If you would like to follow the progress of the update to the EU’s Waste Shipment Regulation please see the ‘legislative procedure file’
• Please see the Commission’s Industrial Policy page to better understand the linkages between the EU’s circular economy transition and other European Green Deal objectives.
• While the CEAP itself it already linked above, you can also visit the Commission’s Circular Economy page to see a timeline of CEAP related key actions and a high level summary of its objectives.
• The American Chamber of Commerce to the EU has also prepared a position paper on the circular economy, summarizing their views.
The United States and Foreign Commercial Service team at the U.S. Mission to the EU stands ready to help U.S. companies (of all sizes) to engage with the EU’s processes on the circular economy. We can provide insights into the state of play of the regulatory process as well as into how you can have your opinion heard. Please don’t hesitate to get in touch with us.
Jim Curtis – Commercial Officer and Standards Attaché – firstname.lastname@example.org
Peter Marton – Commercial Specialist – email@example.com