Can economic instruments promote a circular economy?

The report analyses the potential of developing new economic instruments or modifying existing ones to promote the transition towards a circular economy, with examples from the textile- and construction sector. The results are similar for the two sectors. Economic instruments that could promote circularity include environmental taxes, such as natural resource taxes, import taxes, waste taxes, as well as Extended Producer Responsibility, VAT, and subsidies. A more in-depth analysis of the implementation of environmental taxes in the respective sectors show that taxes can be used to affect the market and consumer behaviour. However, the results indicate that the tax level needs to be relatively high to boost a shift towards circular economy. The results also show the difficulty in anticipating environmental and socio-economic impacts of a tax.