The EU’s Sustainable product policy framework and producer ownership models are key to mainstreaming circular business models
A carbon-neutral circular economy is a precondition for climate neutrality. EU regulation plays a key role in setting the right framework for circular business models to flourish.
- Moving to a circular economy The circular economy An economic model which does not focus on producing more and more goods, but in which consumption is based on using services – sharing, renting and recycling – instead of owning. Materials are not destroyed in the end, but are used to make new products over and over again. Open term page The circular economy requires the promotion of business models based on producer ownership, which ensures that products have a high usage rate throughout their life cycle and, at the end-of-life, are available to reuse as raw materials.
- The upcoming sustainable products policy initiative, including the review and widening of the EU Ecodesign directive, is central to creating a level playing field for circular business models. Sitra also recommends taking EU-level action in other areas, including taxation, financing, consumer policy, standards, public procurement and packaging and waste.
- The European Commission’s consideration of appropriate measures to regulate product durability, reusability, upgradability and reparability1 is highly commendable and needs to be maintained as a priority of the EU’s Circular Economy Action Plan.
- By 2030, only safe, circular and sustainable products should be allowed in the EU internal market. The EU needs to engage in new standard setting for circularity with all relevant parties, including businesses and standardisation organisations.
- The EU’s sustainable product policy will apply at all stages of global product value chains and in order to succeed the circular economy transition must be global. As the global leader, the EU must actively promote the transition to circularity through trade policy and engage with trade partners and international standard-setting bodies in order to co-operate on the development of standards for circular products and services.
The EU’s Circular Economy Action Plan 2020 strives to bring about a green transition of the European economy. It looks at the entire life cycle of products and their materials, from design to end-of-life solutions, to create a framework where no resources go to waste. This includes incentivising circular business models, where we increase products’ longevity and use, for example by leasing, sharing, repairing, upcycling and reusing. Strong policy guidance on such practices would lead us away from wasting virgin resources on constantly producing new products. Products placed in the EU market should be highly repairable, reusable and recyclable and have longer life cycles.
Producer ownership models can provide many opportunities for companies
As part of the European project LAUNCH, Sitra has looked at how producer ownership models can contribute to achieving a circular economy. Producer ownership means that the producer or the service operator retains the legal ownership of a product or service and has the responsibility to ensure that products and materials are used efficiently throughout their life cycle.
Producer ownership can take different forms, such as product-as-a-service, material-as-a-service, capacity-as-a-service or functional guarantees such as return and deposit systems. Customers can thus lease or borrow products or services, and have them refitted, changed or repaired by the producer according to their needs. When the use ends, the producer takes care of either reusing or recycling the product.
The Sitra study “Rethinking ownership – Producer ownership models in a circular economy” shows that producer ownership can be a profitable business, make life easier for customers and benefit the environment.
Creating a level playing field for circular business models
A carbon-neutral circular economy is a precondition for climate neutrality. EU regulation plays a key role in setting the right framework for circular business models to flourish. In most cases, member states can opt for an even more ambitious approach, and help speed up the development.
To create the necessary conditions for circular business models to flourish in Europe, Sitra proposes to focus on the following initiatives.
- Product design and guarantee requirements – To encourage the design and production of long-lasting, repairable and recyclable products, it is essential to address product requirements and explore maintaining producer ownership during the whole life cycle of a product. The upcoming sustainable products policy initiative, including the review of the EU Ecodesign directive, are essential for this. The directive should go beyond the focus on energy efficiency to take into consideration product life cycles to support as-a-service business models.
- Recyclability of materials should be taken into consideration in waste legislation reform to promote the efficient recycling of raw materials, by including conditions for recyclability to advance material returns and takebacks and the development of sustainable offerings based on reusables. This can be achieved by expanding Extended Producer Responsibility schemes to include product and material takebacks, where feasible, instead of just recycling requirements.
- Consumer legislation – At the moment, consumer legislation does not take into account producer ownership models, which is why complicated contracts are required between individuals and businesses. We need to overcome legal challenges associated with ownership while securing consumer rights. A joint framework should be created through a reform of EU consumer legislation.
- Digital material and product passports should be made mandatory for all relevant products. These should specify all materials used in products, their origin, safety, repairability and recyclability and provide consumers with the required information on the right to repair.
- Green public procurement – A low-hanging fruit would be a legally binding approach to green public procurement, to the extent that state aid rules allow, in order to scale up circular business models. To enable this, procurement criteria need to address the life-cycle sustainability of the purchase and support for purchasing as a service.
- Taxation and deductibility/exemptions – Taxation is essential to ensure that linear products or services become less profitable than circular alternatives. Member states should be encouraged to undertake sustainable tax reforms as part of the European Semester process, and the review of the Energy Taxation Directive should be used to incentivise the use of renewables. In addition, the taxation framework on service models, such as product-as-a-service, should be harmonised EU-wide.