ZWE call for full pricing of resource use in EU Circular Economy Act

Zero Waste Europe (ZWE) has today (23 April) published a wide-ranging policy brief advocating for the European Commission to introduce economy-wide measures that would fully internalise the environmental costs of resource consumption in a future Circular Economy Act.

The report, ‘Towards resource autonomy: Proposals for a Circular Economy Act’, calls for fundamental reform of the EU’s approach to resources, arguing that existing policies have failed to adequately address absolute levels of resource consumption.

“Largely missing from the EU’s suite of policy and law are measures to address the absolute level of resource consumption, while it appears increasingly necessary to reduce impacts on the global environment,” states the report, authored by Dr Dominic Hogg.

The Circular Economy Act is expected to be introduced in Q4 2026 as part of what European Commission President Ursula von der Leyen described as a ‘Plan for European Prosperity’ to enhance EU competitiveness while strengthening autonomy.

Three-option approach to price resources fully

At the heart of ZWE’s recommendations is a call for stronger price signals to mitigate consumption through a three-option approach to internalising environmental externalities.

The first option proposes an enhanced EU Emissions Trading System (ETS) - the EU’s cap-and-trade carbon market that limits greenhouse gas emissions from energy-intensive industries by requiring them to purchase allowances - and Carbon Border Adjustment Mechanism (CBAM), which applies carbon pricing to imports to prevent production shifting to countries with less stringent climate policies.

Here, ZWE suggests broadening their scope to include organic chemicals (petrochemical products like plastics, synthetic fibres, and industrial chemicals derived from fossil fuels) and all relevant downstream products, addressing a gap in current coverage, as these sectors represent a major source of industrial emissions currently exempt from carbon pricing mechanisms.

“Setting default levels of emissions at levels that are set towards the upper end of what is justifiable” would incentivise importers to demonstrate genuine lower emissions, the report says. Conversely, to improve EU competitiveness, exporters should be able to claim rebates equivalent to allowances already paid.

The second option builds on top of the first one by proposing the EU adds a tax on air pollutants contributing to ill health, alongside a border tax adjustment for imported and exported products. This would specifically target emissions like particulate matter (PM2.5), nitrogen oxides (NOx), sulphur dioxide (SO2), and other harmful compounds that cause respiratory and cardiovascular diseases.

According to the report, these pollutants currently generate external health costs of €60-193 billion annually in the EU that aren’t reflected in product prices. Similar to the carbon mechanisms, this pollution tax would apply border adjustments to maintain competitiveness while ensuring environmental costs are fairly priced into both domestic and imported goods.

The third option presents the most comprehensive reform, combining elements from the previous options but replacing the emissions trading scheme with a tax-based approach. The report proposes first introducing a progressively rising price floor under the EU ETS that would eventually become the price-setting mechanism. Over time, this floor price would effectively convert into a tax. The report suggests this tax should be “progressively increased towards levels aligned with recent estimates of the social costs of carbon or the abatement costs of an emissions trajectory consistent with commitments made under the Paris Agreement” - levels which are substantially higher than current trading prices.

The report also notes that all three options would likely raise additional revenue in the short term, and recommends “extending the Innovation Fund so that it funds projects that reduce primary resource consumption consistent with the Circular Economy Act.” This would expand the fund’s scope beyond reducing emissions intensity to include projects that reduce consumption of primary resources.

ZWE analysis suggests these measures would drive multiple behavioural changes including reduced resource consumption, switching between materials based on emissions profiles, increased use of secondary materials, and greater emphasis on reuse, repair and remanufacturing.

These proposals complement the expected focus of the Circular Economy Act to strengthen markets for secondary raw materials, boosting both supply and demand.

Targeting ‘high-quality’ recycling

The report also calls for a shift in how recycling in measured, placing emphasis on 'high-quality recycling'. For materials other than food and garden waste, high-quality would mean 'recycling which enables the use of the resulting secondary raw materials in applications where it substitutes primary raw materials of the type from which the secondary raw materials originated, with minimal loss of quality or function', a definition advanced in the Packaging and Packaging Waste Regulations. 

Rather than focusing solely on recycling rates, ZWE recommends setting specific targets for the proportion of recycling that must meet “high-quality” standards, with this proportion rising over time. Hogg notes this approach would help shift from “quantity over quality” in the EU’s recycling laws, which have tended to encourage downcycling of materials rather than maintaining their value.

This focus on quality recycling aligns with wider EC ambitions to potentially double the EU’s circular material use rate by 2030.

European industrial strategy

While the proposals primarily address environmental objectives, they also serve multiple policy goals that align with the EU’s broader industrial strategy.

The report emphasises how a Circular Economy Act (CEA) could simultaneously enhance EU industrial competitiveness, improve resource autonomy, and accelerate decarbonisation – ambitions formally recognised in the EC’s Clean Industrial Deal. Specifically, by creating stable, harmonised markets for secondary raw materials and incentivising their uptake, such an act has the potential to reduce industry’s reliance on volatile primary resource imports, lowering production risks and enhancing resilience.

This directly supports the EU’s strategic autonomy goals, particularly concerning Critical Raw Materials (CRMs) essential for green and digital transitions. In tandem, shifting towards secondary materials significantly lowers the energy required compared to primary extraction and processing, contributing directly to decarbonisation efforts.

The Draghi report acknowledges that the EU’s recycling capacity could be a strategic asset, potentially meeting “more than half to three quarters of its metal requirements for clean technologies in 2050 through local recycling.”

In step with this, the policy brief outlines an approach that would enable the EU waste management industry to capture waste streams containing critical raw materials from third countries, augmenting domestic supply. It suggests that the EU could examine the approach to “green-listing” of waste streams containing CRMs. This requires easing administrative procedures under waste shipment regulations for pre-approved, high-quality waste streams transported to specific recycling facilities within the EU, treating them more like commodities than hazardous waste.

Personal carbon allowances

One of the more progressive recommendations is the introduction of personal carbon allowances (PCAs) that would allocate individual emissions quotas to EU citizens, who could then trade surpluses or deficits. Under such a system, each citizen would receive a free, equal allocation of carbon units covering a significant portion of lifestyle emissions (e.g., home energy, transport, potentially food and consumption). Individuals exceeding their allowance would need to buy units from those using less, creating a direct financial incentive to reduce personal carbon footprints.

“A consumption-based approach would likely have a scope of emissions covered by the EU ETS, but it has the opportunity to capture those embedded in consumption, including those that the CBAM seeks to cover,” states the report. By focusing on the point of consumption rather than production, PCAs could more effectively account for the emissions associated with imported goods and services, going beyond the specific industrial sectors covered by the CBAM.

PCAs can address a gap revealed by EU indicators that the environmental impact of EU consumption consistently exceeds that of EU production, with impacts increasingly “leaked” through imports. This mechanism targets the demand side, driving changes in consumer behaviour.