The transition to a circular economy is critical for achieving sustainable development, resource efficiency, and building a resilient future for all. Over the past decade, the European Union (EU) has demonstrated an unprecedented commitment to advancing a circular economy, advocating for action at national, regional and local level. However, most economies remain predominantly linear. This report provides a comprehensive analysis of circular economy practices, challenges, and opportunities in cities and regions, building on a survey of 64 cities and regions of the EU, lessons learned from 10 place-based policy dialogues in specific cities and regions, and desk research. The report concludes with policy recommendations to accelerate a territorial approach to the circular economy for place-based policies that are aligned with EU-wide goals.
The Circular Economy in Cities and Regions of the European Union
Abstract
Executive Summary
The circular economy is a transformative model that aims to preserve the value of products, materials and resources for as long as possible, while minimising waste. Unlike the traditional linear “take-make-consume-dispose” model, it takes into account the whole life cycle of products including the upstream (design), midstream (use and reuse), and downstream (end-of-life management) stages. The transition to a circular economy requires systemic changes in how resources are managed across sectors such as the built environment, food, waste, water, and energy - all areas where local and regional governments play critical roles. The circular economy is an imperative to deliver on the green transition and to mitigate the growing risks and negative impacts of climate change whilst boosting economic resilience and energy security.
Key benefits of the circular economy
The circular economy holds potential to mitigate global environmental challenges and reduce waste production. In 2024, around 60% of global greenhouse gas (GHG) emissions were generated by materials such as iron and steel, cement and plastic. Material efficiency measures can cut hard-to-abate process emissions in the EU’s production of raw materials by over 50% by 2050. Resource demand strategies in buildings, transport, food, and energy supply systems could reduce global GHG emissions by 40-70% by 2050. Cities generate 50-70% of global waste. In a business-as-usual scenario, municipal waste generation is projected to increase by 5.3% from 220 Mt in 2018 to 231.5 in 2035 in EU. In that context, the implementation of circular economy principles could reduce total municipal waste generation by 34% by 2030, compared to 2020.
A shift to a circular economy offers substantial cost savings and new economic opportunities. By increasing resource efficiency and using secondary materials, businesses can benefit from economic gains and more resilient supply chains. It could also serve to improve economic security. The EU, for instance, imports nearly half of its metal and over 70% of fossil energy materials. Circular practices in sectors such as construction, mobility and energy efficiency help reduce reliance on imported raw materials and energy. Moreover, the valorisation of the materials contained in waste not only decreases the demand for raw materials, it can also lower waste disposal costs. Households can reduce expenses by improving energy efficiency, reusing materials, and adopting practices such as repair and refurbishment.
The circular economy offers significant economic and social benefits, including job creation, improved public health, and enhanced community well-being. By 2030, it could create 2.5 million new jobs within the EU in sectors such as recycling, repair and reuse. By reducing waste production and sharing products and assets such as cars, bikes, and workspaces fostering community engagement, the circular economy can make cities more liveable. It helps decrease noise levels, traffic congestion, and air pollution – factors that can contribute to health-related issues – while ultimately improving quality of life for residents.
Progress and challenges in the circular economy transition
Over the last decade, many countries have demonstrated significant commitment to advancing circular economy principles at all levels of government. As of 2023, 24 of 27 EU Member States had adopted national circular economy strategies, roadmaps or action plans. Additionally, in 2024, three-quarters of the cities and regions contributing to the OECD Survey: The Circular Economy in Cities and Regions in the European Union (EU) reported having established circular economy strategies. For example, the Basque Country’s Circular Economy Strategy 2030 in Spain targets a 30% increase in material productivity and a 30% reduction in waste generation by 2030; the Circular Economy Roadmap of Oulu, Finland aims for carbon neutrality by 2035; and the 2020 Circular Economy Route Map of Glasgow, United Kingdom, focuses on localising the economy to ensure it is based on social inclusion, justice and wellbeing of communities.
Despite these positive developments, the circular economy remains a marginal approach in many countries, In the EU for example, it accounts for only about 2% of total EU GDP and employment and the circular material use rate of 12% in 2023 was still far short of the 2030 target of 24% in the EC 2020 Circular Economy Action Plan. Several EU countries fail to meet binding waste management targets. At subnational level, only 13% of OECD large regions have currently met Sustainable Development Goal (SDG) 12 on responsible production and consumption.
The primary obstacles to the circular economy transition are not technological, but related to the policy environment, notably governance, regulation and financing. Existing policies have emphasised downstream actions, such as waste management, while providing limited incentives for upstream measures like eco-design, circular planning, and reuse. As a result, producers often have few regulatory obligations or financial motivations to design products for longevity, material recovery or reuse. Consumers also have insufficient economic incentives – such as tax benefits or deposit-return schemes – to keep products in use. Financing remains another major hurdle, as businesses and local governments struggle with limited public resources and access to finance. Traditional linear models often remain more profitable due to the slow development of secondary markets for materials like wood, plastics, textiles, and construction and demolition waste. Without stronger financial incentives (‘carrots’) and regulatory requirements (‘sticks’), circular activities can continue to face competitive disadvantages. Finally, governance challenges persist, particularly in tracking progress towards a circular economy. Most available data focuses on waste rather than broader resource flows, urban metabolism, and material inputs and output, making it difficult to measure circularity effectively at local and regional national level.
Policy recommendations for accelerating the circular economy transition
This report highlights actionable policy recommendations for the European Commission (EC), national, regional and local governments, as well as businesses. While directed to the EU context, these recommendations can inspire other OECD and non-OECD countries to accelerate their circular transitions. Key recommendations include:
Make the circular economy accessible and affordable to people. Consumers in cities and regions should have easy access to clear, standardised and simple information on product durability, repairability, and recyclability. Separate collection instructions for recycling should be easy to understand, and repair services should be available and affordable. The EU Eco-design Directive and its emphasis on the “right to repair” provides a good example.
Enhance the competitiveness of the circular economy. First, continuing to work with Member States towards a legally binding framework to phase out subsidies that undermine the circular economy could support circular business models and, at the same time, free up fiscal resources for investments in resource and low-carbon economic activities. Second, pricing negative environmental externalities such as carbon emissions and pollution through taxes could incentivise the use of secondary materials, which are often more expensive than virgin ones, and improve the relative competitiveness of circular businesses. Similar measures could be considered for single-use products (to discourage their use), landfilling and incineration (to encourage recycling, reuse, and waste prevention). In parallel, notwithstanding challenges related to measurement, the EU could investigate the scope to adopt a similar instrument to the Carbon Border Adjustment Mechanism (CBAM), which is designed to tackle carbon leakage, to deal with material leakage
Drive circularity upstream. Circular policies should be defined on a sectoral basis, focusing on materials rather than waste management. The aim should be for national and local governments to move from action on lower levels of the circular economy hierarchy (e.g. recycling) towards higher levels (e.g. waste prevention), with clear targets on resource use reduction, environmental impact, economic output, and job creation. Synergies across value chains (electronics and ICT, batteries and vehicles, packaging, plastics, textiles, construction and buildings, and food, water, and nutrients) should be taken into account. In addition, Extended Producer Responsibility (EPR) schemes could be broadened beyond packaging. Moreover, Green Public Procurement (GPP) could include mandatory circular criteria. While these may, but not necessarily, result in higher public procurement costs in the short term, they hold great potential to deliver longer term (economic and social) benefits including to the public purse, that offset short term costs. They can also help accelerate momentum for more sustainable and eco-friendly products and services that strengthen resilience to climate shocks and indeed economic, supply, shocks.
Ensure a just and regionally balanced circular transition. Through territorial assessments, national governments could identify the current and future implications of the circular transition for industries, workforce groups and communities, and inform circular economy policies, including innovation policies and re-skilling programmes. This would promote circular economy initiatives that are place-sensitive, i.e. that consider the territorially differentiated implications of the circular transition. The EU could support “net losing” regions, experiencing job and income losses, as well as skills mismatches between workers’ expertise in traditional linear roles and the demands of emerging circular economy positions. For example, as part of the 2025 Start-up and Scale-up Strategy, the EU could focus on areas where businesses can successfully scale up circular solutions, particularly those with access to skilled labour, essential services and the necessary infrastructure.
Improve granular data for better decision-making. Subnationally disaggregated indicators should feature in the EC Circular Economy Monitoring Framework (CEMF). National authorities can strengthen their own reporting on circular economy indicators to support place-sensitive circular economy strategies by enhancing data collection methodologies, integrating digital tools, and standardising indicators to improve the accuracy of circular economy statistics. Additionally, investing in experimental data methods, such as big data analytics and remote sensing, could support the collection of new indicators at subnational level.
