Insights on policy levers related to the EU Circular Economy Act

Foreword

Europe is entering a new era in which economic resilience, security and environmental sustainability can no longer be pursued separately. As Sitra’s Megatrends 2026 highlight, shifts in power, resources, technology and society are converging in ways that demand a stronger European response.

Europe’s dependence on imported raw materials has become a strategic weakness, made more visible by supply chain disruptions and an increasingly fragmented geopolitical environment. At the same time, global circularity is moving in the wrong direction while material extraction and environmental pressures continue to grow.

Sitra has prepared this memorandum to support the success of the forthcoming EU Circular Economy Act (CEA), a much-needed initiative for Europe. Accelerating the circular transition requires smart regulation.
From the CEA to extended producer responsibility schemes around the world, the direction is clear: linear systems are losing their license to operate. Regulation should therefore be seen not as a constraint, but as a catalyst. At its best, it creates a level playing field, encourages innovation and protects those most exposed to environmental harm.

Data and artificial intelligence are reshaping what circularity can achieve. Tools such as artificial intelligence (AI) and digital product passports (DPPs) are already improving transparency, traceability and intelligence across material flows.

Finland was the first country in the world to develop a circular economy road map, with Sitra playing a key role in facilitating its creation and supporting its implementation. Sitra has also funded practical experiments for many of the solutions needed and now operates the EU Circular Economy Resource Centre (EU CERC).

We hope this memorandum will contribute to the European debate by offering forward-looking insights and practical recommendations for a more resilient and competitive Europe.

Summary

The transition to a circular economy has stagnated despite existing European Union policies, due to fragmented secondary raw material markets, weak price signals favouring virgin materials, and regulatory barriers. The expected Circular Economy Act could play a central role in harmonising rules, correcting market failures, strengthening demand and supply for high-quality recycled materials, and creating a functioning single market for secondary raw materials that supports investment, scale and price competitiveness.

The objectives of the Circular Economy Act are highly strategic: strengthening the European Union’s resilience, competitiveness, and security by reducing dependence on imported critical raw materials.

This Sitra Memorandum explores possible policy directions for the Circular Economy Act and outlines how it could become a core market-shaping instrument for Europe’s circular economy transition. It examines the Act’s objectives from a systemic perspective and identifies policy levers for different parts of the economy. The memorandum recommends actions both for shaping the Circular Economy Act itself and for supporting the systemic transition towards a circular economy.

The memorandum suggests that the Circular Economy Act should prioritise measures that encourage the retention of valuable materials within the EU and support investment in domestic capacity for recovery and processing. It should also coherently complement and activate existing legislation, notably the Ecodesign for Sustainable Products Regulation and the Critical Raw Materials Act. Digital enablers are presented as key tools for improving transparency, trust, quality and the management of multiple life cycles.

Finally, the memorandum notes that the Circular Economy Act must both align and seek synergies with global value chains, investment partnerships and trade policy.