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Innovation for the Circular Economy


The European Union has just passed the second Circular Economy Action Plan, just five years after the launch of the first, whose implementation has been parsimonious and limited to the approval of new rules and guidelines for the 53 planned actions. No detailed assessment of the results achieved has been carried out so far, but the Eurostat Monitoring Framework for Circular Economy allows us to identify some trends. Recent data show some progress in recycling of certain waste (e.g. construction, organic or municipal waste) but it remains at very low levels for plastics or electrical and electronic waste. Above all, we see that currently only 11.2 percent of materials are recovered and reused; therefore, there is much room for improvement. The Circular Economy (CE) is now central to institutional discourse, social media, business initiatives and civil action itself. The urgency of EC is emphasized to face the global challenge of climate change, to reduce the unsustainable consumption of natural resources and the enormous flows of waste that threaten the health of ecosystems. Quite paradoxically, the CE is also presented as a strategy for creating jobs, for boosting economic “green” growth and improving Europe’s industrial competitiveness.

The new CE action plan expresses the ambition of a systemic and transformative transition of the EU and beyond. It is one of the cornerstones of the European Green Deal, which sets out the roadmap for achieving climate neutrality by 2050 and decoupling economic growth from resource use. A systemic change such as this is complex and smooth, and faces numerous barriers (technological, industrial interdependencies, global value chains, vested interests, consumption patterns, social and institutional routines, etc). The technological paradigm tends to reproduce patterns of solutions due to their path-dependent nature and lock-in situations. Systemic change towards the CE requires disruptive innovations in both technology and business models, consumption patterns, urban design and social innovations of all kinds. Therefore, it is necessary to dig deeper on the relationship between innovation and the transition to CE.

The transition to a CE requires innovation at the system level to transform it in order to respect the limits of the ecosystem. Such a transition will require a clear political commitment, and broad social and institutional changes, likely to be more far-reaching than purely technological changes. In this aim, CE principles come to the fore in guiding and signalling the direction and content of all types of innovation.

Beyond environmental policy and innovation policy, a new, broader and more ambitious approach is needed, one that goes beyond the classic vision of repairing environmental damage or achieving a technologically greener economy. The combination of different types of instruments and a clear design of it are key factors to ensuring effective results.  Consequently, CE innovation requires new framework conditions that includes, alongside the classic demand pull and technology push approaches, instruments with a systemic focus. It will be necessary to smartly combine the use of regulatory, fiscal expenditure, taxation, financing, monetary and other instruments. Likewise, innovation is needed in the policy design process itself. The growing complexity of the economy-environment interactions requires an integrative approach, with mission-oriented strategies, that overcomes the traditional juxtaposition of different regulations. Innovation is needed in the design of policy packages that address the possible interactions and the expected and unintended effects of different policies and instruments. This is a condition for fostering not only incremental changes but also more radical technology and social innovations.

Innovation is a requirement for the transition to the CE and, reciprocally, the principles and objectives of the CE should guide the allocation of public and private resources for innovation. Firstly, general purpose technologies and new technological developments will play an essential role in favouring the creation and dissemination of innovative circular products, services and business models.  The development of new digital tools, blockchain technology, artificial intelligence, biotechnology, nanotechnology and so on will need to be oriented towards the implementation of solutions and circular undertakings.

Secondly, from the point of view of production, the announced sustainable product policy legislative initiative by the EU could be a key elements in boosting innovation for the CE. Provided  that 80% of the environmental impacts of products are determined at the design stage, the mandatory incorporation of ecological criteria, as well as the new “right to repair” for consumers, will discourage accelerated obsolescence strategies by companies. This policy will in principle set clear guidelines for innovation for companies in all sectors of activity. Innovation, and therefore the competitive advantage associated with it, will be based on products and services that include or effectively support product durability, reparability and recoverability.

Thirdly,  innovation in business models is of utmost importance. In particular, models based on product-services systems, oriented towards the provision of functionality rather than the sale of products. These and other innovative business models need to be further explored as catalysts for more circular products and services. In addition, consumers and users themselves must innovate in their consumption practices. Consumers must commit to reduce the consumption of materials and energy, to use life-extended goods and to share goods in a collaborative manner; in many cases they will become prosumers. Likewise, it is important to be innovative in the usage of the public procurement and direct involvement of the public sector in the CE initiatives.

Finally, the systemic innovation required for the transition towards the CE calls for a new role of territories, involving a plurality of agents and making the CE a tool for the planned development path. Taking advantage of the existing resource and knowledge base, the strengths and innovative potential of business, social and public agents, will be key to defining an economic model that will achieve its greatest impact at the local/regional level in terms of environmental and socio-economic benefits.

In short, the transition to an economy aligned with the principles of circularity will require innovations in many areas, not necessarily radical from the technological point of view, involving a multitude of agents and adapted to each socio-economic context.

By Ángeles Pereira & Xavier Vence

Universidade de Santiago de Compostela (USC)

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